Flux Power Holdings, Inc. 10-K

ITEM 9A - CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Act of 1934. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2023 because of the material weakness identified in our internal controls over financial reporting. 32 Management’s Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurances with respect to financial statement preparation and presentation. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision of management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and subsequent guidance prepared by the Commission specifically for smaller public companies as of June 30, 2023. Based on that evaluation, our management concluded that our internal control over financial reporting was not effective as of June 30,2023 due to an identified material weakness as a result of not having sufficient personnel resources with technical accounting expertise related to certain aspects of the financial reporting process. Until such time as we could have additional resources with such level of technical accounting expertise, management intends to implement measures designed to improve our internal control over financial reporting to remediate material weaknesses, including the use of third-party consultants and accounting experts. This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding the effectiveness of the Company’s internal control over financial reporting, as such report is not required due to the Company’s status as a smaller reporting company. Change in Internal Control over Financial Reporting Except as discussed above, there have been no changes in the Company’s internal controls over financial reporting during the fiscal quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B - OTHER INFORMATION None. ITEM 9C - DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS Not Applicable. 33 PART III ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors, Executive Officers and Significant Employees The following table and text set forth the names and ages of our current directors, executive officers and significant employees as of September 8, 2023. Our Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders or until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. There are no family relationships among any of the directors and executive officers. From time to time, our directors have received compensation in the form of cash and equity grant for their services on the Board. Name Age Position Ronald F. Dutt 76 Director, Chief Executive Officer and President Charles A. Scheiwe 57 Chief Financial Officer and Secretary Jeffrey C. Mason (5) 52 Vice President of Operations Michael Johnson 75 Director Lisa Walters-Hoffert (1)(2) 65 Director Dale T. Robinette (1)(3) 59 Director Cheemin Bo-Linn (1)(4) 69 Director (1) Independent Director (2) Chairperson of the Audit Committee, Member of the Compensation Committee and the Nominating and Governance Committee (3) Lead Independent Director, Chairperson of the Compensation Committee, Member of the Audit Committee and the Nominating and Governance Committee (4) Chairperson of the Nominating and Governance Committee, Member of the Audit Committee and the Compensation Committee. (5) On November 7, 2022, Mr. Mason’s position was expanded to include additional Company authority and delegation. There are no arrangements or understandings between our directors and executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer. Business Experience Ronald F. Dutt , Chairman, Chief Executive Officer, President, and Director . Mr. Dutt has been our chief executive officer, former interim chief financial officer and director since March 19, 2014. He became our chairman on June 28, 2019. On September 19, 2017, he was also appointed as our president, chief financial officer and corporate secretary. He resigned as chief financial officer and corporate secretary as of December 16, 2018. Previously, he was our chief financial officer since December 7, 2012, and our interim chief executive officer since June 28, 2013. Mr. Dutt has served as the Company’s interim corporate secretary since June 28, 2013. Prior to Flux Power, Mr. Dutt provided chief financial officer and chief operating officer consulting services during 2008 through 2012. In this capacity Mr. Dutt provided financial consulting, including strategic business modeling and managed operations. Prior to 2008, Mr. Dutt served in several capacities as executive vice president, chief financial officer and treasurer for various public and private companies including SOLA International, Directed Electronics, Fritz Companies, DHL Americas, Aptera Motors, Inc., and Visa International. Mr. Dutt holds an MBA in Finance from University of Washington and an undergraduate degree in Chemistry from the University of North Carolina. Additionally, Mr. Dutt served in the United States Navy and received an honorable discharge as a Lieutenant. Charles A. Scheiwe, Chief Financial Officer and Secretary. Mr. Scheiwe joined the Company in July of 2018 and has been acting as the Company’s Controller since July 9, 2018. He was appointed as our chief financial officer and secretary on December 17, 2018. Prior to joining the Company, Mr. Scheiwe was the controller of Senstay, Inc. and provided financial and accounting consulting services to start-up companies from 2016 to 2018. From 2006 to 2016, Mr. Scheiwe was the vice president of finance and controller for GreatCall, Inc. Mr. Scheiwe’s experience in accounting, financial planning and analysis, business intelligence, cash management, and equity management has prepared and qualified him for the position of chief financial officer and secretary of the Company. Mr. Scheiwe has a Bachelor of Science degree in Business Management, with emphasis in Accounting, from the University of Colorado. Mr. Scheiwe also holds a CPA certificate. 34 Jeffrey C. Mason, Vice President of Operations. Mr. Mason served as the Director of Manufacturing of the Company from January 2021 to December 2021, and Vice President of Operations since December 2021. On November 7, 2022, Mr. Mason’s position was expanded to include additional Company authority and delegation. Prior to joining the Company, Mr. Mason was the plant manager at NEO Tech from March 2017 to January 2021 after being promoted from Director of Operations from December 2013 to March 2017. Mr. Mason has also worked for Sumitomo Electric Interconnect Products, Inc., Radio Design Labs, Inc., and Motorola Inc. during his career. Mr. Mason received his Master of Business Administration in International Business in 2015 and his Bachelor of Business Administration/Management in 2013 from North Central University. Mr. Mason is also Total Productive Maintenance (TPM) Instructor Certified by the Japan Institute of Plant Maintenance, Tokyo, Japan. Michael Johnson, Director. Mr. Johnson has been our director since July 12, 2012. Mr. Johnson has been a director of Flux Power since it was incorporated. Since 2002, Mr. Johnson has been a director and the chief executive officer of Esenjay Petroleum Corporation (Esenjay Petroleum), a Delaware company located in Corpus Christi, Texas, which is engaged in the business oil exploration and production. Mr. Johnson’s primary responsibility at Esenjay Petroleum is to manage the business and company as chief executive officer. Mr. Johnson is a director and beneficial owner of Esenjay Investments LLC, a Delaware limited liability company engaged in the business of investing in companies, and an affiliate of the Company owning approximately 27.5% of our outstanding shares, including common stock underlying options, and warrants that were exercisable or convertible or which would become exercisable or convertible within sixty (60) days. As a result of Mr. Johnson’s leadership and business experience, he is an industry expert in the natural gas exploration industry and brings a wealth of management and successful company building experience to the board. Mr. Johnson received a Bachelor of Science degree in mechanical engineering from the University of Southwestern Louisiana. Lisa Walters-Hoffert, Director. Ms. Walters-Hoffert was appointed to our Board on June 28, 2019. Ms. Walters-Hoffert was a co-founder of Daré Bioscience, Inc. and following the company’s merger with Cerulean Pharma, Inc. in July of 2017, became Chief Financial Officer of the surviving public company (NASDAQ: DARE). For over twenty-five (25) years, Ms. Walters-Hoffert was an investment banker focused on small-cap public companies in the technology and life science sectors. From 2003 to 2015, Ms. Walters-Hoffert worked at Roth Capital Partners as Managing Director in the Investment Banking Division. Ms. Walters-Hoffert has held various positions in the corporate finance and investment banking divisions of Citicorp Securities in San José, Costa Rica and Oppenheimer & Co, Inc. in New York City, New York. Ms. Walters-Hoffert has served as a member of the Board of Directors of the San Diego Venture Group, as Past Chair of the UCSD Librarian’s Advisory Board, and as Past Chair of the Board of Directors of Planned Parenthood of the Pacific Southwest. Ms. Walters-Hoffert currently serves as a member of the Board of Directors of The Elementary Institute of Science in San Diego. Ms. Walters-Hoffert graduated magna cum laude from Duke University with a B.S. in Management Sciences. As a senior financial executive with over twenty-five years of experience in investment banking and corporate finance and based on Ms. Walters-Hoffert’s expertise in audit, compliance, valuation, equity finance, mergers, and corporate strategy, the Company believes Ms. Walters-Hoffert is qualified to be on the Board. Dale T. Robinette, Director . Mr. Robinette was appointed to our Board on June 28, 2019 and our lead independent director on September 10, 2021. Mr. Robinette has been a CEO Coach and Master Chair since 2013 as an independent contractor to Vistage Worldwide, Inc., an executive coaching company. In addition, since 2013 Mr. Robinette has been providing business consulting related to top-line growth and bottom-line improvement through his company EPIQ Development. From 2013 to 2019, Mr. Robinette was the Founder and CEO of EPIQ Space, a marketing website for the satellite industry, a member-based community of suppliers promoting their offerings. Mr. Robinette was with Peregrine Semiconductor, Inc., (known today as PSEMI, a division of Murata Manufacturing Co Ltd.), a manufacturer of high-performance RF CMOS integrated circuits, from 2007 to 2013 in two roles as a Director of Worldwide Sales as well as the Director of the High Reliability Business Unit. Mr. Robinette started his career from 1991 to 2007 at Tyco Electronics Ltd. (known today as TE Connectivity Ltd.), a passive electronics manufacturer, in various sales, sales leadership and product development leadership roles. Mr. Robinette received a Bachelor of Science degree in Business Administration, Marketing from San Diego State University. Based on the above qualifications, the Company believes Mr. Robinette is qualified to be on the Board. 35 Cheemin Bo-Linn, Director. Dr. Bo-Linn was appointed to the Board of Directors on January 14, 2022. She was the CEO of Peritus Partners, a global valuation accelerator and information technology operations and consulting company from 2013 through 1Q2023. Her Board of Director experience spans Canada, the United States, and Australia, with Board leadership positions from Lead Independent Director to Committee Chair of every major committee (Audit, Compensation, Nomination/Governance) and Chair of Technology, Cybersecurity, and Sustainability, across eight prior public companies and multiple privates. She held various executive and President roles in multiple companies including Vice-President of IBM Corporation. Her C-suite and Board roles include the lithium, ecommerce, manufacturing and distribution, technology, healthcare, construction, software, and marketing sectors. Bo-Linn was named The Financial Times 2021 “Top 100 Diverse Directors”, NACD’s (National Association of Corporate Directors’) “Top 50 Directors,” and inducted into the “Hall of Fame for Women in Technology.” Thru 2019, she was Visiting Professor on digital tech (AI, data analytics, cybersecurity) and marketing at the joint Columbia University, London School of Business and University of Hong Kong EMBA/MBA program. She has been invited to speak at the United Nations, Dow Jones, and British Chamber. She earned her Doctorate Degree (EdD) in Computer based Information Systems and Organizational Change from the University of Houston. The Board believes that Dr. Bo-Linn’s extensive senior executive management and board experience in private and public companies qualifies her to serve on the Board of Directors. Involvement in Certain Legal Proceedings To the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. Board Leadership Structure and Role in Risk Oversight Our Board of Directors (“Board”) recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure to provide independent oversight of management. Our Board is currently led by a Chairman of the Board who also serves as our Chief Executive Officer. The Board understands that the right Board leadership structure may vary depending on the circumstances, and our independent directors periodically assess these roles and the Board leadership to ensure the leadership structure best serves the interests of the Company and stockholders. On September 10, 2021, the Board adopted the Lead Independent Director Guidelines (“Guidelines.). The Guidelines provide that when the positions of Chief Executive Officer and Chairman of the Board are combined or the Chairman is not an independent director, the independent directors will appoint a lead independent director to serve with the authority and responsibility described in such Guidelines, and as the Board and/or the independent directors may determine from time to time. The Guidelines are available on our website at www.fluxpower.com. Mr. Dutt currently holds the Chairman and Chief Executive Officer roles. Mr. Robinette currently serves as the Lead Independent Director elected by the majority of the Board on September 10, 2021. The responsibilities of the Lead Independent Director include, among others: (i) serving as primary intermediary between non-employee directors and management; (ii) working with the Chairman of the Board to approve the agenda and meeting schedules for the Board; (iii) working with the Chairman of the Board as to the quality, quantity and timeliness of the information provided to directors; (iv) in consultation with the Nominating and Governance Committee, reviewing and reporting on the results of the Board and Committee performance self-evaluations; (v) calling additional meetings of independent directors; and (vi) serving as liaison for consultation and communication with stockholders. 36 We believe the current leadership structure, with combined Chairman and Chief Executive Officer roles and a Lead Independent Director, best serves the Company and its stockholders at this time. Mr. Robinette possesses understanding and knowledge of the business and affairs of the Company and has the ability to devote a substantial amount of time to serve in this capacity. In addition, we believe having one leader serving as both the Chairman and Chief Executive Officer provides decisive, consistent and effective leadership, as well as clear accountability to our stockholders and customers. This enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees, customers and suppliers. The Board believes the appointment of a strong Lead Independent Director and the use of regular executive sessions of the non-management directors, along with a majority the Board being composed of independent directors, allow it to maintain effective oversight of management. We believe that the combination of the Chairman and Chief Executive Officer roles is appropriate in the current circumstances and, based on the relevant facts and circumstances, separation of these offices would not serve our best interests and the best interests of our stockholders at this time. In addition, our Board as a whole has responsibility for risk oversight. Our Board exercises this risk oversight responsibility directly and through its committees. The risk oversight responsibility of our Board and its committees is informed by reports from our management teams to provide visibility to our Board about the identification, assessment and management of key risks, and our management’s risk mitigation strategies. Our Board has primary responsibility for evaluating strategic and operational risk, including related to significant transactions. Our audit committee has primary responsibility for overseeing our major financial and accounting risk exposures, and, among other things, discusses guidelines and policies with respect to assessing and managing risk with management and our independent auditor. Our compensation committee has responsibility for evaluating risks arising from our compensation and people policies and practices. Our nominating and corporate governance committee has responsibility for evaluating risks relating to our corporate governance practices. Our committees and management provide reports to our Board on these matters. In its governance role, and particularly in exercising its duty of care and diligence, our Board is responsible for ensuring that appropriate risk management policies and procedures are in place to protect the Company’s assets and business. Our Board has broad and ultimate oversight responsibility for our risk management processes and programs and executive management is responsible for the day-to-day evaluation and management of risks to the Company. Board of Directors Diversity Our Board of Directors is committed to fostering a diversity of backgrounds and perspectives so that our Board of Directors positions our company for the future. The members of our Board of Directors represent a mix of ages, genders, races, ethnicities, geographies, cultures, and other perspectives that we believe expand our Board of Directors’ understanding of the needs and viewpoints of our partners, employees, stockholders, and other stakeholders. The matrix below provides certain information regarding the composition of our Board of Directors as of the date of this report. Each of the categories listed in the below table has the meaning as it is used in Nasdaq Stock Market Rule 5605(f). Board Diversity Matrix (as of September 8, 2023) Total Number of Directors 5 Female Male Part I: Gender Identity Directors 2 3 Part II: Demographic Background Asian 1 0 White 1 3 LGBTQ+ 1 37 Board Composition, Committees and Independence Under the rules of NASDAQ, “independent” directors must make up a majority of a listed company’s Board of Directors. In addition, applicable NASDAQ rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent within the meaning of the applicable NASDAQ rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. Our Board has undertaken a review of the independence of each director and considered whether any director has a material relationship with us that could compromise the director’s ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our Board determined that Ms. Walters-Hoffert, Ms. Bo-Linn and Mr. Robinette are independent directors as defined in the listing standards of NASDAQ and SEC rules and regulations. A majority of our directors are independent, as required under applicable NASDAQ rules. As required under applicable NASDAQ rules, our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present. Board Committees Our Board has established an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. The composition and responsibilities of each of the committees is described below. Audit Committee The Audit Committee of the Board of Directors currently consists of three independent directors of which at least one, the Chairperson of the Audit Committee, qualifies as a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Ms. Walters-Hoffert is the Chairperson of the Audit Committee and financial expert. Dr. Bo-Linn and Mr. Robinette are the other directors who are members of the Audit Committee. The Audit Committee’s duties are to recommend to our Board of Directors the engagement of the independent registered public accounting firm to audit our consolidated financial statements and to review our accounting and auditing principles. The Audit Committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by any internal auditors and independent public accountants, including their recommendations to improve the system of accounting and internal controls. The Audit Committee will at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as a committee member and who possess an understanding of consolidated financial statements and generally accepted accounting principles. Our Audit Committee operates under a written charter, which is available on our website at www.fluxpower.com . Compensation Committee The Compensation Committee currently consists of three independent directors. The Compensation Committee establishes our executive compensation policy, determines the salary and bonuses of our executive officers and recommends to the Board stock option grants or other incentive equity awards for our executive officers. Mr. Robinette is the Chairperson of the Compensation Committee, and Ms. Walters-Hoffert and Dr. Bo-Linn are members of the Compensation Committee. Each of the members of our Compensation Committee are independent under NASDAQ’s independence standards for compensation committee members. Our chief executive officer often makes recommendations to the Compensation Committee and the Board concerning compensation of other executive officers. The Compensation Committee seeks input on certain compensation policies from the chief executive officer. Our Compensation Committee operates under a written charter, which is available on our website at www.fluxpower.com . Nominating and Governance Committee The Nominating and Governance Committee currently consists of three independent directors. The Nominating and Governance Committee is responsible for matters relating to the corporate governance of our Company and the nomination of members of the Board and committees of the Board. Dr. Bo-Linn is the Chairperson of the Nominating and Governance Committee. Ms. Walters-Hoffert and Mr. Robinette are members of the Nominating and Governance Committee. Each of the members of our Nominating and Governance Committee is independent under NASDAQ’s independence standards. The Nominating and Governance Committee operates under a written charter, which is available on our website at www.fluxpower.com . 38 We seek directors with established strong professional reputations and experience in areas relevant to the strategy and operations of our business. We seek directors who possess the qualities of integrity and candor, who have strong analytical skills and who are willing to engage management and each other in a constructive and collaborative fashion. We also seek directors who have the ability and commitment to devote significant time and energy to serve on the Board and its committees. We believe that all of our directors meet the foregoing qualifications. We do not have a formal policy with respect to diversity. Code of Business Conduct and Ethics Our Board has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our directors, officers, and employees. Any waivers of any provision of this Code for our directors or officers may be granted only by the Board or a committee appointed by the Board. Any waivers of any provisions of this Code for an employee or a representative may be granted only by our chief executive officer or principal accounting officer. We have filed a copy of the Code with the SEC and have made it available on our website at https://www.fluxpower.com/corporate-governance. In addition, we will provide any person, without charge, a copy of this Code. Requests for a copy of the Code may be made by writing to the Company at is c/o Flux Power Holdings, Inc., 2685 S. Melrose Drive, Vista, California 92081. Indemnification Agreements We executed a standard form of indemnification agreement (“Indemnification Agreement”) with each of our Board members and executive officers (each, an “Indemnitee”). Pursuant to and subject to the terms, conditions and limitations set forth in the Indemnification Agreement, we agreed to indemnify each Indemnitee, against any and all expenses incurred in connection with the Indemnitee’s service as our officer, director and or agent, or is or was serving at our request as a director, officer, employee, agent or advisor of another corporation, partnership, joint venture, trust, limited liability company, or other entity or enterprise but only if the Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interest, and in the case of a criminal proceeding, had no reasonable cause to believe that his conduct was unlawful. In addition, the indemnification provided in the indemnification agreement is applicable whether or not negligence or gross negligence of the Indemnitee is alleged or proven. Additionally, the Indemnification Agreement establishes processes and procedures for indemnification claims, advancement of expenses and costs and contribution obligations. Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning their ownership, of Common Stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of Forms 3, 4 and 5 and amendments thereto filed electronically with the SEC during the most recent fiscal year, we believe that all reports required by Section 16(a) for transactions in the fiscal year ended June 30, 2023, were timely filed except for one late filing of a Form 4 by Michael Johnson relating to a sale of 4,000 shares of common stock pursuant to a Rule 10b5-1 trading plan previously adopted by Esenjay Investments, LLC on June 13, 2023, which was inadvertently filed one day late on June 16, 2023. 39 ITEM 11 - EXECUTIVE COMPENSATION Compensation for our Named Executive Officers The following table sets forth information concerning all forms of compensation earned by our named executive officers during Fiscal 2023 and Fiscal 2022 for services provided to the Company and its subsidiary. Name and Principal Position Year Salary ($) Bonus ($) Stock Awards (1) ($) Option Awards (2) ($) Non-Equity Incentive Plan Compensation ($) All Other Compensation ($) Total ($) Ronald F. Dutt, Chief Executive 2023 $ 290,962 $ 146,273 $ 230,542 $ - $ - $ - $ 667,777 Officer, President, and Chairman 2022 $ 275,000 $ 55,055 $ 138,702 $ - $ - $ - $ 468,757 Charles A. Scheiwe 2023 $ 205,989 $ 53,613 $ 120,419 $ - $ - $ - $ 380,021 Chief Financial Officer and Corporate Secretary 2022 $ 205,200 $ 28,757 $ 72,450 $ - $ - $ - $ 306,407 Jeffrey C. Mason (3) 2023 $ 204,346 $ 40,176 $ 100,602 $ - $ - $ - $ 345,124 Vice President of Operations 2022 $ 200,000 $ 20,020 $ 44,160 $ - $ - $ - $ 264,180 (1) Represent the fair value of the RSUs granted on grant date. (2) The grant date fair value was determined in accordance with the provisions of FASB ASC Topic No. 718 using the Black-Scholes valuation model with assumptions described in more detail in the notes to our audited financial statements included in this report. (3) On November 7, 2022, Mr. Mason’s position was expanded to include additional Company authority and delegation. Benefit Plans We do not have any profit-sharing plan or similar plans for the benefit of our officers, directors or employees. However, we may establish such plan in the future. Equity Compensation Plan Information In connection with the reverse acquisition of Flux Power, Inc. in 2012, we assumed the 2010 Plan. As of June 30, 2023, the number of options outstanding to purchase common stock under the 2010 Plan was 21,944. No additional options to purchase common stock may be granted under the 2010 Plan. On February 17, 2015, our shareholders approved our 2014 Equity Incentive Plan (“2014 Plan”), which was amended on July 23, 2018 and on November 5, 2020. The 2014 Plan authorizes the issuance of awards for up to 1,000,000 shares of our common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. We granted 0 and 175,265 stock options under the 2014 Plan during Fiscal 2022 and 2023, respectively. We granted 72,566 and 250,786 restricted stock units under the 2014 Plan during Fiscal 2023 and 2022, respectively. On April 29, 2021, at the Company’s annual stockholders meeting, the 2021 Equity Incentive Plan (the “2021 Plan”) was approved by our stockholders. The 2021 Plan authorizes the issuance of awards for up to 2,000,000 shares of our common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. No awards were granted under the 2021 Plan during Fiscal 2022. We granted 449,176 stock options under the 2021 Plan during Fiscal 2023. As of June 30, 2023, we had 398,922 options outstanding and exercisable under the 2021 Plan, the 2014 Plan and the 2010 Plan. In addition, as of June 30, 2023, we had 193,749 RSUs outstanding under the 2014 Plan. 40 The following table sets forth certain information concerning unexercised options, stock that has not vested, and equity compensation plan awards outstanding as of June 30, 2023 for the named executive officers below: Option Awards (1) Stock Awards Name Award Grant Date Number of Securities Underlying Unexercised Options Exercisable Number of Securities Underlying Unexercised Options Uexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested Market Value of Shares or Units of Stock That Have Not Vested ($) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested Equity Incentive Plan: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) Ronald Dutt 10/31/2022 80,175 - - $ 3.43 10/31/2032 - $ - - $ - 3/15/2019 50,000 - - $ 13.60 3/15/2029 - $ - - $ - 7/25/2018 33,527 - - 19.80 7/25/2028 - $ - - $ - 6/29/2018 50,000 - - 14.40 6/29/2028 - $ - - $ - 10/26/2017 50,000 - - 4.60 10/26/2027 - $ - - $ - 12/22/2015 19,000 - - 5.00 12/22/2025 - $ - - $ - 7/30/2013 17,500 - - 10.00 7/29/2023 - $ - - $ - 11/12/2020 - - - - 11/11/2030 6,607 $ 58,670 6,607 $ 58,670 11/12/2020 - - - - 11/11/2030 13,214 $ 117,340 13,214 $ 117,340 10/29/2021 - - - - 10/29/2031 8,041 $ 46,236 8,041 $ 46,236 Charles Scheiwe 10/31/2022 41,878 - - 3.43 10/31/2032 - $ - - $ - 3/15/2019 30,000 - - 13.60 3/15/2029 - $ - - $ - 11/12/2020 - - - - 11/11/2030 3,515 $ 31,213 3,515 $ 31,213 11/12/2020 - - - - 11/11/2030 7,030 $ 62,426 7,030 $ 62,426 10/29/2021 - - - - 10/29/2031 4,200 $ 24,150 6,300 $ 24,150 Jeffrey C. Mason 10/31/2022 34,986 - - 3.43 10/31/2032 - $ - - $ - 10/29/2021 - - - - 10/29/2031 2,560 $ 14,720 2,560 $ 14,720 (1) The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is calculated based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. Treasury yield for a term equal to the expected life of the options at the time of grant. The fair value of each restricted stock unit is the fair value of the Company’s common stock on the grant date. (2) On November 7, 2022, Mr. Mason’s position was expanded to include additional Company authority and delegation. 41 Aggregated Option/Stock Appreciation Right (“SAR”) exercised and Fiscal year-end Option/SAR value table Neither our executive officers nor the other individuals listed in the tables above, exercised options or SARs during Fiscal 2023. 2023 Employee Stock Purchase Plan (the “2023 ESPP”) The 2023 ESPP was approved by the Board on March 6, 2023 and approved by the Company’s stockholders on April 20, 2023. The 2023 ESPP enables eligible employees of the Company and certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions to purchase shares of the Company’s Common Stock and acquire an ownership interest in the Company. The maximum aggregate number of shares of the Company’s Common Stock that have been reserved as authorized for the grant of options under the 2023 ESPP is 350,000 shares, subject to adjustment as provided for in the 2023 ESPP. Participation in the 2023 ESPP is voluntary and is limited to eligible employees (as such term is defined in the 2023 ESPP) of the Company or a Participating Subsidiary who (i) has been employed by the Company or a Participating Subsidiary for at least 90 days and (ii) is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year. Each eligible employee may authorize payroll deductions of 1-15% of the eligible employee’s compensation on each pay day to be used to purchase up to 1,500 shares of Common Stock for the employee’s account occurring during an offering period. The 2023 ESPP has a term of ten (10) years commencing on April 20, 2023, the date of approval by the Company’s stockholders, unless otherwise earlier terminated. There was no stock purchased under the 2023 ESPP during Fiscal 2023. Employment Agreements with Executive Officers On February 12, 2021, we entered into an Amended and Restated Employment Agreement with the Company’s president and chief executive officer, Ronald F. Dutt (the “Dutt Employment Agreement”), which amends and restates the Employment Agreement effective December 11, 2012, as amended (the “Prior Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the Dutt Employment Agreement memorialized Mr. Dutt’s continued services as the president and chief executive officer of the Company and its wholly-owned subsidiary, Flux Power, Inc. (“Flux Power”), and the terms pursuant to which he would provide such services. Pursuant to the terms of the Dutt Employment Agreement, Mr. Dutt’s current annual base salary is $300,000. On February 12, 2021, we entered into an Employment Agreement with the Company’s chief financial officer, treasurer and secretary, Charles A. Scheiwe (the “Scheiwe Employment Agreement”). In addition to the inclusion of terms relating to change in control, termination, severance, benefits and the acceleration of vesting of options and restricted stock units upon certain events, the Employment Agreement memorialized Mr. Scheiwe’s continued services as the chief financial officer and secretary of the Company, and as chief financial officer/treasurer and secretary of Flux Power. Pursuant to the terms of the Scheiwe Employment Agreement, Mr. Scheiwe’s current annual base salary is $205,200. 42 Under their respective employment agreement, Messrs. Dutt and Scheiwe, among other things, are (i) eligible for annual target cash bonus and awards of restricted stock units or other equity-based incentive compensation consistent with his position as determined by the Board of Directors (the “Board”) and the Compensation Committee; (ii) entitled to reimbursement for all reasonable business expenses incurred in performing services; and (iii) entitled to certain severance and change of control benefits contingent upon such employee’s agreement to a general release of claims in favor of the Company following termination of employment. Messrs. Dutt and Scheiwe and are also eligible to participate in all customary employee benefit plans or programs generally made available to the senior executive officers. Messrs. Dutt and Scheiwe have each agreed to observe the terms of a standard confidentiality and non-compete agreement for a restricted period of two (2) years. Each of Messrs. Dutt and Scheiwe employment is “at-will” and may be terminated at any time for any reason. Separation Agreement On August 12, 2022, Jonathan Berry, the Company’s Chief Operating Officer, separated from the Company and entered into an Employee Separation and Release dated August 24, 2022 (“Separation Agreement”). Under the Separation Agreement, the Company agreed to provide Mr. Berry with certain payments and benefits comprising of: (i) a separation payment of two hundred five thousand two hundred dollars, less required withholdings, (ii) twenty-eight thousand nine hundred seven and 52/100 dollars, less require holdings, to defray costs for COBRA coverage, and (iii) reimbursement for an amount equal to twelve months for life insurance continuation (collectively, the “Separation Benefits”). In exchange for the Separation Benefits, among other things as set forth in the Separation Agreement, Mr. Berry agreed to a release of claims and waivers in favor of the Company and to certain restrictive covenant obligations, and also reaffirmed his commitment to comply with his existing restrictive covenant obligations. Annual Bonus Plan On November 5, 2020, the Board approved an annual cash bonus plan (the “Annual Bonus Plan”) which allows the Compensation Committee and/or the Board of the Company to set the amount of bonus each fiscal year and the performance criteria. Executive officers and all employees (other than part-time employees and temporary employees) are eligible to participate in the Annual Bonus Plan (“Participants”) as long as the Participant remains an active regular employee of the Company. The Annual Bonus Plan was effective for Fiscal 2021 and is effective each fiscal year thereafter (the “Plan Year”). For each Plan Year, the Compensation Committee establishes an aggregate amount of allocable Bonus under the Annual Bonus Plan and determines the performance goals applicable to a bonus during a Plan Year (the “Participation Criteria”). The Participation Criteria may differ from Participant to Participant and from bonus to bonus. The Participation Criteria for each Plan Year is based on the Company achieving certain performance targets based on annual revenue, gross margin, operating expense and new business development. All of the Company’s executive officers are eligible to participate in the Annual Bonus Plan. Fiscal 2022 For the Company’s fiscal year ending on June 30, 2022, or Fiscal 2022, the performance goals applicable to a bonus are based on the Company achieving certain targets based on the Company’s annual revenue, gross margin, EBITDAS (earnings before interest expense (excluding interest income), taxes, depreciation, amortization and stock compensation expense in accordance with U.S. GAAP), new strategic customers, demonstrated direct cost reduction and working capital and inventory turnover (the “Financial Targets”) and additional bonus amounts if the Company’s financial results exceeds certain thresholds of the Financial Targets. 43 On October 29, 2021, the Compensation Committee approved target cash bonuses under the Annual Cash Bonus Plan for Fiscal 2022 to the following executive officers, which target bonus was calculated based on percentage of the executive’s current base salary: Name Position Current Base Salary Percentage of Salary Target Cash Bonus (“TCB”) Maximum Payout(1) Ronald F. Dutt Chief Executive Officer $ 275,000 50 % $ 137,500 $ 165,000 Charles Scheiwe Chief Financial Officer $ 205,200 35 % $ 71,820 $ 86,184 Jeffery C. Mason Vice President of Operations $ 200,000 25 % $ 50,000 $ 60,000 (1) There are no bonus caps for achieving above set revenue target and gross margin target. If actual results exceed 100% of revenue target and/or gross margin target, every 1% of revenue target and/or gross margin target would result in an increase in bonus equal to 0.2% of the TCB for such executive officers. On October 31, 2022, the Compensation Committee and the Board approved the following cash bonuses to the following executive officers, whereby the final cash bonus payout was determined based on a payout percentage of the executive’s previous target cash bonus for fiscal year 2022: Name Position Target Cash Bonus Payout Percentage Cash Bonus Payout Ronald F. Dutt Chief Executive Officer $ 137,500 40 % $ 55,055.00 Charles Scheiwe Chief Financial Officer $ 71,820 40 % $ 28,756.73 Jeffery C. Mason Vice President of Operations $ 50,000 40 % $ 20,020 Fiscal 2023 On October 31, 2022, the Compensation Committee also approved the bonus pool and performance criteria for the Annual Bonus Plan for the fiscal year 2023 (the “2023 Bonus”). For the Company’s fiscal year 2023, the performance goals applicable to a bonus are based on the Company achieving certain targets based on the Company’s annual revenue, Adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, and stock-based compensation), functional goals (the “Financial Targets”), in addition to individual performance objectives and additional bonus amounts if the Company’s financial results exceeds certain thresholds of the Financial Targets. The Compensation Committee approved the target cash bonuses under the 2023 Bonus based on the base salary for fiscal year 2023 for the following executive officers: Name Position Base Salary Bonus Percentage of Base Salary Total Target Payout Maximum Payout (1) Ronald F. Dutt Chief Executive Officer $ 300,000 (2) 75 % $ 225,000 $ 270,000 Charles Scheiwe Chief Financial Officer $ 205,200 35 % $ 71,820 $ 86,184 Jeffery C. Mason Vice President of Operations 206,000 30 % 61,800 74,160 (1) Subject to a bonus cap for achieving above set revenue target and a payout cap for achieving 10% positive Adjusted EBITDA. (2) To be effective during the second fiscal quarter of 2023. Amendment to 2014 Plan On November 5, 2020, the Board approved an amendment to the 2014 Plan as amended to include the right to grant Restricted Stock Units (“RSUs”). All of the Company’s executive officers are eligible to participate in the 2014 Plan. Restricted Stock Unit Grants Fiscal 2023 Grants We did not grant any Restricted Stock Units (“RSUs”) to any of our executive officers in Fiscal 2023. 44 Fiscal 2022 Grants On October 29, 2021, the Compensation Committee approved the grant of Restricted Stock Units (“RSUs”) under the Company’s 2014 Equity Incentive Plan (the “2014 Plan”) to certain employees of the Company or its subsidiary, Flux Power, Inc. The RSUs are subject to the terms and conditions provided in (i) the form of Restricted Stock Unit Award Agreement which is time based (“Time Based Awards”), and (ii) the form of Performance Restricted Stock Unit Award Agreement which is performance based (“Performance Based Awards”). The following named executive officers of the Company were granted RSUs under the 2014 Plan in the amounts and according to the vesting schedule indicated below: Time Based Awards: Name Position No. of RSUs Vesting Schedule Ronald F. Dutt Chief Executive Officer 12,061 Vest annually over 3 years with the first vest date on October 27, 2022 Charles Scheiwe Chief Financial Officer 6,300 Vest annually over 3 years with the first vest date on October 27, 2022 Jeffrey C. Mason Vice President of Operations 3,840 Vest annually over 3 years with the first vest date on October 27, 2022 Performance Based Awards: Name Position No. of RSUs Maximum Grant Vesting Schedule Ronald F. Dutt Chief Executive Officer 18,092 Three years from grant upon meeting performance target* Charles Scheiwe Chief Financial Officer 9,450 Three years from grant upon meeting performance target * Jeffrey C. Mason Vice President of Operations 5,760 Three years from grant upon meeting performance target * * The performance target for the RSU to be based on EBITDAS (earnings before interest expense (excluding interest income), taxes, depreciation, amortization and stock compensation expense in accordance with U.S. GAAP) for the second half of the Company’s fiscal year ending June 30, 2022. Stock Option Grants Fiscal 2023 Grants On October 31, 2022 (the Grant Date”), the Compensation Committee approved the grant of incentive stock options (the “Options”) under the Company’s 2014 Equity Incentive Plan (the “2014 Plan”) and the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) to certain employees of the Company or its subsidiary, Flux Power, Inc. The Options are subject to the terms and conditions provided in the form of Incentive Stock Option Agreement under the 2014 Plan (the “2014 Option Agreement”) or the form of Incentive Stock Option Agreement under the 2021 Plan (the “2021 Option Agreement”). The following named executive officers of the Company were granted Stock Options under the 2021 Plan in such number and vesting schedule set forth as follows: Name Position Options* Vesting Schedule Ronald F. Dutt Chief Executive Officer 80,175 Four (4) equal annual installments commencing one year after the Grant Date Charles Scheiwe Chief Financial Officer 41,878 Four (4) equal annual installments commencing one year after the Grant Date Jeffrey C. Mason Vice President of Operations 34,986 Four (4) equal annual installments commencing one year after the Grant Date * Subject to $100,000 ISO limitation under the 2021 Plan. 45 Incentive Plans Management, the Committee and the Board will continue to explore and evaluate different long-term and short-term incentives to help attract, retain and motivate our employees to align their interest to our business and financial success through the use of equity award and cash bonuses. Compensation of Non-Executive Directors On January 14, 2022, pursuant to the recommendation and advice of the Compensation Committee of the Board of the Company, the Board approved the following annual compensation package for non-executive directors of the Company for calendar year 2022, as follows: Name Independent Non-Executive Director Position Base Retainer (cash) Chair Fee (cash) Lead Independent Director ( cash) Lisa Walters-Hoffert X Audit Chair $ 50,000 $ 7,500 $ - Dale Robinette X Compensation Chair $ 50,000 $ 5,000 $ 20,000 John A. Cosentino Jr .(1) X Governance Chair $ 50,000 $ 5,000 (1) $ - Cheemin Bo-Linn (2) X Board Member $ 50,000 $ - $ - Michael Johnson Board Member $ 50,000 $ - $ - (1) Mr. Cosentino resigned as our director on March 1, 2022. As appreciation for Mr. Cosentino’s board services, the Board approved to (i) accelerate the vesting of the following securities the Board granted in connection with his board services: 435 unvested options and 4,578 restricted stock awards, and (iii) pay his board fees for 3 rd quarter of Fiscal 2022. (2) Dr. Bo-Linn was appointed as Chairperson of the Governance Committee on March 3, 2022. For Dr. Bo-Linn’s services as Chairperson, she is entitled to a Chair Fee of $5,000 for calendar year 2022. There was no change to the cash compensation package for non-executive director of the Company during Fiscal 2023. On March 8, 2023, pursuant to the recommendation and advice of the Compensation Committee of the Board of the Company, the Board approved the following annual compensation package for non-executive directors of the Company for fiscal year ending June 30, 2024, as follows: Name Independent Non-Executive Director Position Base Retainer (cash) Chair Fee (cash) Committee Member Fee (1) (cash) Lead Independent Director ( cash) Lisa Walters-Hoffert X Audit Chair $ 50,000 $ 7,500 $ 5,000 $ - Dale Robinette X Compensation Chair $ 50,000 $ 5,000 $ 6,250 $ 20,000 Cheemin Bo-Linn (2) X Board Member $ 50,000 $ 5,000 $ 6,250 $ - Michael Johnson Board Member $ 50,000 $ - $ - $ - (1) Committee Member Fees: $3,750 for non-chair committee members of the Audit Committee, and $2,500 for non-chair committee members of the Compensation Committee and the Nominating and Governance Committee. Equity Component of Non-Executive Director Compensation In addition, our directors are eligible to receive an annual equity grant of RSUs. Pursuant to grants approved by our Board at the recommendation of the Compensation Committee in April 2022 and 2023, our non-executive directors were granted RSUs under the 2014 Plan. The number of RSUs granted to each non-executive director was equal to the amount of $50,000 divided by the fair market value of the RSUs, with all RSUs subject to vesting restrictions. The fair market value of the RSUs was determined by applying a 10-day volume weighted average stock price prior to the grant issuance date. 46 In April 2022, each of our non-executive directors were granted 17,793 RSUs which are subject to fully vest on April 28, 2023. In addition, in August 2022, as compensation for board services provided during the last quarter of Fiscal 2022, Ms. Bo-Linn was granted 5,034 RSUs, of which 1/3 vested immediately, each of the remaining 1/3 of the RSUs will vest on April 29, 2023, and April 29, 2024. Ms. Bo-Linn’s s grant was consistent with the standard equity component of Non-Executive Director Compensation Package as approved by the Board. In April 2023, each of our non-executive directors were granted 16,883 RSUs which are subject to fully vest on April 20, 2024. Director Compensation Table Below is summary of compensation accrued or paid to our non-executive directors during Fiscal 2023 and Fiscal 2022. Mr. Dutt, our chief executive officer and president, received no compensation for his service as a director and is not included in the table. The compensation Mr. Dutt receives as an employee of the Company is included in the section titled “Executive Compensation.” Name Year Fees Earned or Paid in Cash ($) Stock Awards (2) ($) All Other Compensation ($) Total ($) Lisa Walters-Hoffert 2023 $ 57,500 50,000 - $ 107,500 2022 57,500 50,000 - 107,500 Dale Robinette 2023 $ 75,000 50,000 - $ 125,000 2022 65,000 50,000 - 115,000 John A. Cosentino Jr. (1) 2023 $ - - - $ - 2022 41,250 - - 41,250 Michael Johnson 2023 $ 50,000 50,000 - $ 100,000 2022 50,000 50,000 - 100,000 Cheemin Bo-Linn (3) 2023 $ 55,000 50,000 - $ 105,000 2022 26,667 50,000 76,667 (1) Mr. Cosentino resigned as our director on March 1, 2022. (2) Represent the fair value of the RSUs granted using the volume weighted average price of the ten days of trading prior to grant date. (3) Ms. Bo-Linn joined our board of directors on January 14, 2022. 47 The following table shows the aggregate number of vested stock options held by our non-employee directors as of June 30, 2023 and June 30, 2022: Name Year Vested Stock Options Lisa Walters-Hoffert 2023 3,948 2022 3,948 Dale Robinette 2023 3,948 2022 3,948 Cheemin Bo-Linn (1) 2023 - 2022 - Michael Johnson 2023 12,948 2022 12,948 John A. Cosentino Jr. (2) 2023 - 2022 - (1) Ms. Bo-Linn joined our board of director on January 14, 2022. (2) Mr. Cosentino resigned as our director on March 1, 2022. ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS BENEFICIAL OWNERSHIP Security Ownership of Principal Stockholders and Management As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Exchange Act, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or otherwise, subject to community property laws where applicable. As of September 8, 2023, we had a total of 16,478,238 shares of common stock issued and outstanding. The following table sets forth, as of September 8, 2023, information concerning the beneficial ownership of shares of our common stock held by our directors, our named executive officers, our directors and executive officers as a group, and each person known by us to be a beneficial owner of more than five percent (5%) of our outstanding common stock. Unless otherwise indicated, the business address of each of our directors, executive officers and beneficial owners of more than five percent (5%) of our outstanding common stock is c/o Flux Power Holdings, Inc., 2685 S. Melrose Drive, Vista, California 92081. Each person has sole voting and investment power with respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. 48 Name and Address of Beneficial Owner (1) Shares Beneficially Owned % of Ownership Officers and Directors Michael Johnson, Director 4,403,008 (2) 26.7 % Ronald Dutt, Chief Executive Officer, President, and Director 246,185 (3) 1.5 % Charles A Scheiwe, Chief Financial Officer and Secretary 45,733 (4) * Jeffrey C. Mason, Vice President of Operations 2,656 (5) * Cheemin Bo-Linn, Director 22,618 (6) * Lisa Walters-Hoffert, Director 25,793 (7) * Dale Robinette, Director 24,793 (8) * All Officers and Directors as a group (7 people) 4,770,786 28.5 % 5% Stockholders Esenjay Investments LLC 4,369,215 (2) 26.5 % Cleveland Capital Management L.L.C. 1250 Linda Street, Suite 304 Rocky River, OH 44116 945,214 (9) 5.7 % Formindable Asset Management, LLC 221 E Fourth Street, Suite 2700 Cincinnati OH 45202 1,598,228 (10) 9.7 % * Represents less than 1% of shares outstanding. (1) All addresses above are 2685 S. Melrose Drive, Vista, California 92081, unless otherwise stated. (2) Includes (i) 20,845 shares of common stock held by Mr. Johnson and 4,369,215 shares of common stock held by Esenjay Investments LLC, of which Mr. Johnson is the sole director and beneficial owner, and (ii) 12,948 shares of common stock issuable to Mr. Johnson upon exercise of stock options. (3) Includes 33,030 shares of common stock and 213,155 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs. (4) Includes 10,118 shares of common stock and 35,615 shares of common stock issuable upon exercise of stock options and settlement of vested RSUs. (5) Includes 1,376 shares of common stock and 1,280 shares of common stock issuable upon settlement of vested RSUs. (6) Includes 22,618 shares of common stock. (7) Includes 21,845 shares of common stock and 3,948 shares of common stock issuable upon exercise of stock options. (8) Includes 20,845 shares of common stock and 3,948 shares of common stock issuable upon exercise of stock options. (9) Based on Amendment No. 5 to Schedule 13G filed jointly by Cleveland, Rocky River Specific Opportunities Fund LLC, Wade Massad and Cleveland Capital Management, L.L.C. with the SEC on February 13, 2023. Reflects 945,214 shares of common stock beneficially owned by certain private funds managed by Cleveland Capital Management, L.L.C., or by its principals. (10) Based on Amendment No. 1 to Schedule 13G filed by Formidable Asset Management, LLC with the SEC on May 4, 2023. * Represents less than 1% of shares outstanding. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following includes a summary of certain relationships and transactions, including transactions since July 1, 2021 to September 8, 2023 and any currently proposed transactions, to which we were or are to be a participant, in which (1) the amount involved exceeded or will exceed the lesser of (i) $120,000 or (ii) one percent (1%) of the average of our total assets for the last two completed fiscal years, and (2) any of our directors, executive officers or holders of more than five percent (5%) of our capital stock, or any affiliate or member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest other than compensation and other arrangements that are described under the section titled “Executive Compensation.” Pursuant to the Audit Committee’s written charter, our Audit Committee has the responsibility to review, approve and oversee transactions between the Company and any related person (as defined in Item 404 of Regulation S-K) and any potential conflict of interest situations on an ongoing basis, in accordance with our policies and procedures, and to develop policies and procedures for the Audit Committee’s approval of related party transactions. 49 Subordinated Line of Credit Facility On May 11, 2022, we entered into a Credit Facility Agreement (the “Subordinated LOC”) with Cleveland Capital, L.P. (“Cleveland”), Herndon Plant Oakley, Ltd., (“HPO”), and other lenders (together with Cleveland and HPO, the “Lenders”). The Subordinated LOC provides us with a short-term line of credit (the “LOC”) not less than $3,000,000 and not more than $5,000,000, the proceeds of which shall be used by us for working capital purposes. As of June 30, 2022, the Lenders committed an aggregate of $4,000,000. In connection with entry into the Subordinated LOC, we paid to each Lender a one-time committee fee in cash equal to 3.5% of such Lender’s Commitment Amount. In addition, in consideration of the Lenders’ commitment to provide the Advances to us, we issued the Lenders five-year warrants to purchase an aggregate of 128,000 shares of common stock at an exercise price of $2.53 per share that are, subject to certain ownership limitations, exercisable immediately. Pursuant to a selling agreement, dated as of May 11, 2022, the Company retained HPO as its placement agent in connection with the Subordinated LOC. As compensation for services rendered in conjunction with the Subordinated LOC, the Company paid HPO a finder fee equal to 3% of the commitment amount from each such Lender placed by HPO in cash. On December 15, 2022, the Board of Directors of the Company elected to extend the Due Date to December 31, 2023 and the Company paid the Lenders an extension fee in the aggregate amount of $80,000. ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES Independent Auditor For the fiscal years ended June 30, 2023 and 2022, the Company’s independent public accounting firm was Baker Tilly US, LLP Fees Paid to Principal Independent Registered Public Accounting Firm The aggregate fees billed by our Independent Registered Public Accounting Firm, for the fiscal years ended June 30, 2023 and 2022 are as follows: 2023 2022 Audit fees(1) $ 140,000 $ 131,000 Audit related fees(2) - 22,000 Tax fees(3) - - All other fees(4) - - Total $ 140,000 $ 153,000 (1) Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our quarterly financial statements and those services normally provided in connection with statutory or regulatory filings or engagements including comfort letters, consents and other services related to SEC matters. This information is presented as of the latest practicable date for this annual report. (2) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported above under “Audit Fees.” (3) Baker Tilly US, LLP did not provide us with tax compliance, tax advice or tax planning services. (4) All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding three categories. No such fees were incurred during the fiscal years ended June 30, 2023 or 2022. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Our audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm, the scope of services provided by our independent registered public accounting firm and the fees for the services to be performed. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Our independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by our independent registered public accounting firm in accordance with this preapproval, and the fees for the services performed to date. All of the services relating to the fees described in the table above were approved by our audit committee. 50 PART IV ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) Financial Statements The following financial statements of Flux Power Holdings, Inc., and Report of Baker Tilly US, LLP, independent registered public accounting firm, are included in this report: Page Report of Independent Registered Public Accounting Firm – (Baker Tilly US, LLP, San Diego, CA PCAOB Firm ID# 23 ) F-1 Consolidated Balance Sheets as of June 30, 2023 and 2022 F-2 Consolidated Statements of Operations for the Years Ended June 30, 2023 and 2022 F-3 Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2023 and 2022 F-4 Consolidated Statements of Cash Flows for the Years Ended June 30, 2023 and 2022 F-5 Notes to the Consolidated Financial Statements F-6 (2) Financial Statement Schedules: All schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not required. (3) Exhibits: The exhibits required by Item 601 of Regulation S-K are listed in subparagraph (b) below. (b) The following exhibits are filed as part of this Report Exhibit No. Description 2.1 Securities Exchange Agreement dated May 18, 2012. Incorporated by reference to Exhibit 2.1 on Form 8-K filed with the SEC on May 24, 2012. 2.2 Amendment No. 1 to the Securities Exchange Agreement dated June 13, 2012. Incorporated by reference to Exhibit 2.2 on Form 8-K filed with the SEC on June 18, 2012. 3.1 Restated Articles of Incorporation. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on February 19, 2015. 3.2 Amended and Restated Bylaws of Flux Power Holdings, Inc. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on May 31, 2012. 3.3 Certificate of Amendment to Articles of Incorporation. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on August 18, 2017. 3.4 Certificate of Change. Incorporated by reference to Exhibit 3.1 on Form 8-K filed with the SEC on July 12, 2019. 4(vi) Description of Securities. Incorporated by reference to Exhibit 4(vi) on Form 10-K filed with the SEC on September 28, 2020. 4.1 Form of Warrant. Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on September 23, 2021. 4.2 Form of Warrant Certificate. Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on May 13, 2022. 4.3 Warrant to Purchase Stock issued to Silicon Valley Bank, dated June 23, 2022. Incorporated by reference to Exhibit 4.1 on Form 8-K filed with the SEC on June 28, 2022. 10.1# Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 9, 2019. 10.2 Lease Agreement dated April 25, 2019. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 30, 2019. 51 10.3 First Amendment to Standard Industrial/Commercial Multi Tenant Lease with Accutek dated March 1, 2020. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on March 5, 2020. 10.4 Form of Representative Warrant. Incorporated by reference to Exhibit 10.1 on Form 10-Q filed with the SEC on November 12, 2020. 10.5# Flux Power Holdings, Inc. 2010 Stock Plan: Form of Stock Option Agreement. Incorporated by reference to Exhibit 10.6 on Form 8-K filed with the SEC on June 18, 2012. 10.6# 2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.23 on Form 10-Q filed with the SEC on May 15, 2015. 10.7# Amendment to the Flux Power Holdings Inc. 2014 Equity Incentive Plan. Incorporated by reference to Exhibit 10.20 on Form 10-K filed with the SEC on September 27, 2018. 10.8# Amendment No. 2 to the Flux Power Holdings Inc. 2014 Equity Incentive Plan Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on November 9, 2020. 10.9# Form of Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on November 9, 2020. 10.10# Form of Performance Restricted Stock Unit Award Agreement. Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on November 9, 2020. 10.11# Annual Cash Bonus Plan. Incorporated by reference to Exhibit 10.4 on Form 8-K filed with the SEC on November 9, 2020. 10.12# Amended and Restated Employment Agreement by and between Flux Power Holdings, Inc. and Ronald F. Dutt. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on February 17, 2021. 10.13# Employment Agreement by and between Flux Power Holdings, Inc. and Charles A. Scheiwe. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on February 17, 2021. 10.14# 2021 Equity Incentive Plan. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on May 4, 2021. 10.15# Form of Restricted Stock Unit Award Agreement – Non-Executive Director. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on May 4, 2021. 10.16 Form of Securities Purchase Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on September 23, 2021. 10.17# Form of Performance Restricted Stock Unit Award. Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on November 2, 2021 10.18 Credit Facility Agreement dated May 11, 2022. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on May 13, 2022. 10.19 Form of Subordinated Unsecured Promissory Note. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on May 13, 2022. 10.20# Employee Separation and Release with Jonathan Berry dated August 24, 2022. Incorporated by reference to Exhibit 10.1 on Form 8-K/A filed with the SEC on August 26, 2022. 10.21 Flux Power Holdings, Inc. 2023 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on April 21, 2023 10.22 Loan and Security Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed with the SEC on August 3, 2023. 10.23 Intellectual Property Security Agreement. Incorporated by reference to Exhibit 10.2 on Form 8-K filed with the SEC on August 3, 2023. 10.24 Form of Revolving Note. Incorporated by reference to Exhibit 10.3 on Form 8-K filed with the SEC on August 3, 2023. 14.1 Code of Business Conduct and Ethics. Incorporated by reference to Exhibit 99.4 on Form 8-K filed with the SEC on July 2, 2019. 21.1 Subsidiaries. Incorporated by reference to Exhibit 21.1 on Form 8-K filed with the SEC on June 18, 2012 23.1* Consent of Independent Registered Public Accounting Firm 31.1* Certifications of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act. 31.2* Certifications of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act. 32.1* Certifications of the Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act. 32.2* Certifications of the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act. 101.INS* Inline XBRL Instance Document* 101.SCH* Inline XBRL Taxonomy Extension Schema 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File, formatted in Inline XBRL (included as Exhibit 101) * Filed herewith. # Indicates management contract or compensatory plan or arrangement. ITEM 16 – FORM 10-K SUMMARY None . 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Flux Power Holdings, Inc. Dated: September 21, 2023 By: /s/ Ronald F. Dutt Ronald F. Dutt Chief Executive Officer (Principal Executive Officer) By: /s/ Charles A. Scheiwe Charles A. Scheiwe Chief Financial Officer ( Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Ronald F. Dutt Director, Chief Executive Officer, September 21, 2023 Ronald F. Dutt President and Director (Principal Executive Officer) /s/ Charles A. Scheiwe Chief Financial Officer September 21, 2023 Charles A. Scheiwe (Principal Financial Officer) /s/ Michael Johnson Director September 21, 2023 Michael Johnson /s/ Cheemin Bo-Linn Director September 21, 2023 Cheemin Bo-Linn /s/ Lisa Walters-Hoffert Director September 21, 2023 Lisa Walters-Hoffert /s/ Dale Robinette Director September 21, 2023 Dale Robinette 53 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Flux Power Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Flux Power Holdings, Inc. (the “Company”) as of June 30, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended June 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ BAKER TILLY US, LLP We have served as the Company’s auditor since 2012. San Diego, California September 21, 2023 F- 1 FLUX POWER HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS June 30, 2023 June 30, 2022 ASSETS Current assets: Cash $ 2,379,000 $ 485,000 Accounts receivable 8,649,000 8,609,000 Inventories, net 18,996,000 16,262,000 Other current assets 918,000 1,261,000 Total current assets 30,942,000 26,617,000 Right of use asset 2,854,000 2,597,000 Property, plant and equipment, net 1,789,000 1,578,000 Other assets 120,000 89,000 Total assets $ 35,705,000 $ 30,881,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 9,735,000 $ 6,645,000 Accrued expenses 3,181,000 2,209,000 Revolving line of credit 9,912,000 4,889,000 Deferred revenue 131,000 163,000 Customer deposits 82,000 175,000 Finance lease payable, current portion 143,000 - Office lease payable, current portion 644,000 504,000 Accrued interest 2,000 1,000 Total current liabilities 23,830,000 14,586,000 Long term liabilities: Finance lease payable, less current portion 273,000 - Office lease payable, less current portion 2,055,000 2,361,000 Total liabilities 26,158,000 16,947,000 Stockholders’ equity: Preferred stock, $ 0.001 par value; 500,000 shares authorized; none issued and outstanding - - Common stock, $ 0.001 par value; 30,000,000 shares authorized; 16,462,215 and 15,996,658 shares issued and outstanding at June 30, 2023 and June 30, 2022, respectively 16,000 16,000 Additional paid-in capital 98,086,000 95,732,000 Accumulated deficit ( 88,555,000 ) ( 81,814,000 ) Total stockholders’ equity 9,547,000 13,934,000 Total liabilities and stockholders’ equity $ 35,705,000 $ 30,881,000 The accompanying notes are an integral part of these consolidated financial statements. F- 2 FLUX POWER HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended June 30, 2023 2022 Revenues $ 66,337,000 $ 42,333,000 Cost of sales 49,237,000 35,034,000 Gross profit 17,100,000 7,299,000 Operating expenses: Selling and administrative 17,620,000 15,515,000 Research and development 4,890,000 7,141,000 Total operating expenses 22,510,000 22,656,000 Operating loss ( 5,410,000 ) ( 15,357,000 ) Other income (expense): Other income 8,000 - Interest expense ( 1,339,000 ) ( 252,000 ) Net loss $ ( 6,741,000 ) $ ( 15,609,000 ) Net loss per share - basic and diluted $ ( 0.42 ) $ ( 1.01 ) Net loss per share - basic $ ( 0.42 ) $ ( 1.01 ) Weighted average number of common shares outstanding - basic and diluted 16,055,256 15,439,530 Weighted average number of common shares outstanding - basic 16,055,256 15,439,530 The accompanying notes are an integral part of these consolidated financial statements. F- 3 FLUX POWER HOLDING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Additional Shares Capital Stock Amount Paid-in Capital Accumulated Deficit Total Balance at June 30, 2022 15,996,658 $ 16,000 $ 95,732,000 $ ( 81,814,000 ) $ 13,934,000 Issuance of common stock - public offering, net of costs 355,309 - 1,556,000 - 1,556,000 Issuance of common stock - exercised options and RSU settlement 110,248 - - - - Stock-based compensation - - 798,000 - 798,000 Net loss - - - ( 6,741,000 ) ( 6,741,000 ) Balance at June 30, 2023 16,462,215 $ 16,000 $ 98,086,000 $ ( 88,555,000 ) $ 9,547,000 Common Stock Additional Shares Capital Stock Amount Paid-in Capital Accumulated Deficit Total Balance at June 30, 2021 13,652,164 $ 14,000 $ 79,197,000 $ ( 66,205,000 ) $ 13,006,000 Balance 13,652,164 $ 14,000 $ 79,197,000 $ ( 66,205,000 ) $ 13,006,000 Issuance of common stock and warrants - registered direct offering, net of costs 2,142,860 2,000 13,969,000 - 13,971,000 Issuance of common stock - public offering, net of costs 190,782 - 1,602,000 - 1,602,000 Issuance of common stock, exercised options and RSU settlement 10,852 - - - - Fair value of warrants issued - - 253,000 - 253,000 Stock-based compensation - - 711,000 - 711,000 Net loss - - - ( 15,609,000 ) ( 15,609,000 ) Balance at June 30, 2022 15,996,658 $ 16,000 $ 95,732,000 $ ( 81,814,000 ) $ 13,934,000 Balance 15,996,658 $ 16,000 $ 95,732,000 $ ( 81,814,000 ) $ 13,934,000 The accompanying notes are an integral part of these consolidated financial statements. F- 4 FLUX POWER HOLDING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended June 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 6,741,000 ) $ ( 15,609,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 899,000 575,000 Stock-based compensation 798,000 711,000 Fair value of warrants issued as debt discount cost - 253,000 Amortization of debt issuance costs 482,000 - Noncash lease expense 512,000 438,000 Allowance for inventory reserve - 61,000 Changes in operating assets and liabilities: Accounts receivable ( 40,000 ) ( 2,512,000 ) Inventories ( 2,734,000 ) ( 5,810,000 ) Other current assets ( 170,000 ) ( 802,000 ) Accounts payable 3,090,000 ( 530,000 ) Accrued expenses 972,000 ( 374,000 ) Deferred revenue ( 32,000 ) 139,000 Accrued interest 1,000 ( 1,000 ) Office lease payable ( 518,000 ) ( 436,000 ) Customer deposits ( 93,000 ) 4,000 Net cash used in operating activities ( 3,574,000 ) ( 23,893,000 ) Cash flows from investing activities Purchases of equipment ( 1,032,000 ) ( 797,000 ) Proceeds from sale of fixed assets 8,000 - Net cash used in investing activities ( 1,024,000 ) ( 797,000 ) Cash flows from financing activities: Proceeds from the issuance of common stock in registered direct offering, net of offering costs - 13,971,000 Proceeds from the issuance of common stock in public offering, net of offering costs 1,556,000 1,602,000 Proceeds from revolving line of credit 63,400,000 8,450,000 Payment of revolving line of credit ( 58,377,000 ) ( 3,561,000 ) Payment of financed leases ( 87,000 ) - Net cash provided by financing activities 6,492,000 20,462,000 Net change in cash 1,894,000 ( 4,228,000 ) Cash, beginning of period 485,000 4,713,000 Cash, end of period $ 2,379,000 $ 485,000 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Initial right of use asset recognition $ 855,000 $ - Common stock issued for vested RSUs $ 417,000 $ 21,000 Supplemental cash flow information: Interest paid $ 1,127,000 $ 151,000 The accompanying notes are an integral part of these consolidated financial statements. F- 5 FLUX POWER HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2023 and JUNE 30, 2022 NOTE 1 - NATURE OF BUSINESS Nature of Business Flux Power Holdings, Inc. (“Flux”) was incorporated in 2008 in the State of Nevada, and Flux’s operations are conducted through its wholly owned subsidiary, Flux Power, Inc. (“Flux Power”), a California corporation (collectively, the “Company”). The Company designs, develops, manufactures, and sells a portfolio of advanced lithium-ion energy storage solutions for electrification of a range of industrial commercial sectors which include material handling, airport ground support equipment (“GSE”), and stationary energy storage. The Company believes its mobile and stationary energy storage solutions provide customers with a reliable, high performing, cost effective, and more environmentally friendly alternative as compared to traditional lead acid and propane-based solutions. The Company’s modular and scalable design allows different configurations of lithium-ion battery packs to be paired with our proprietary wireless battery management system to provide the level of energy storage required and “state of the art” real time monitoring of pack performance. The Company believes that the increasing demand for lithium-ion battery packs and more environmentally friendly energy storage solutions in the material handling sector should continue to drive revenue growth. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company’s significant accounting policies which have been consistently applied in the preparation of the accompanying consolidated financial statements follows: Principles of Consolidation The consolidated financial statements include Flux Power Holdings, Inc. and its wholly-owned subsidiary Flux Power, Inc. after elimination of all intercompany accounts and transactions. Liquidity Considerations The accompanying financial statements and notes have been prepared assuming the Company will continue as a going concern. For the year ended June 30, 2023, the Company generated negative cash flows from operations of $ 3.6 million and had an accumulated deficit of $ 88.6 million. Management has evaluated the Company’s expected cash requirements over the next twelve (12) months, including investments in additional sales and marketing and research and development, capital expenditures, and working capital requirements. Management believes the Company’s existing cash and funding available under the Gibraltar Business Capital Revolving Line of Credit and the Subordinated LOC, along with the forecasted gross margin will be sufficient to meet the Company’s anticipated capital resources to fund planned operations for the next twelve (12) months. Historically the Company has not generated sufficient cash to fund its operations. Based on the Company’s existing backlog and customer orders, management anticipates increased revenues, together with the improvements in its gross margin will move it closer to profitability. The planned gross margin improvement tasks include, but is not limited to, a plan to drive bill of material costs down while increasing price of our products for new orders. The Company has received new orders in Fiscal 2023, of approximately $ 61 million and believes through conversations with its customers that its anticipation of continued increase of new orders is reasonable. F- 6 As of September 8, 2023, $ 4.0 million remained available under the GBC Credit Facility and $ 4.0 million was available for future draws under the Subordinated LOC. As of September 8, 2023, $ 4.1 million remained available under the Company’s ATM agreement that could be utilized if necessary. In addition, to support our operations and anticipated growth, we intend to explore additional sources of capital as needed. We also continue to execute our cost reduction, sourcing, and pricing recovery initiatives in efforts to increase our gross margins and improve cash flow from operations. Unforeseen factors in the general economy beyond management’s control could potentially have negative impact on the planned gross margin improvement plan. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as certain financial statement disclosures. Significant estimates include valuation allowances relating to inventory and deferred tax assets. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Cash and Cash Equivalents As of June 30, 2023 and June 30, 2022, cash was approximately $ 2.4 million and $ 485,000 , respectively. Cash consisted of funds held in a non-interest-bearing bank deposit account. The Company considers all liquid short-term investments with maturities of less than three months when acquired to be cash equivalents. The Company had no cash equivalents at June 30, 2023 and 2022. Fair Values of Financial Instruments The carrying amount of our cash, accounts payable, accounts receivable, and accrued liabilities approximate their estimated fair values due to the short-term maturities of those financial instruments. The carrying amount of the line of credit agreement approximates its fair values as interest approximates current market interest rates for similar instruments. Management has concluded that it is not practical to determine the estimated fair value of amounts due to related parties because the transactions cannot be assumed to have been consummated at arm’s length, the terms are not deemed to be market terms, there are no quoted values available for these instruments, and an independent valuation would not be practical due to the lack of data regarding similar instruments, if any, and the associated potential costs. The Company does not have any other assets or liabilities that are measured at fair value on a recurring or non-recurring basis. Accounts Receivable Accounts receivable are carried at their estimated collectible amounts. The Company has not experienced collection issues related to its accounts receivable and has not recorded an allowance for doubtful accounts during the fiscal years ended June 30, 2023 and 2022. Inventories Inventories consist primarily of battery management systems and the related subcomponents and are stated at the lower of cost or net realizable value. The Company evaluates inventories to determine if write-downs are necessary due to obsolescence or if the inventory levels are in excess of anticipated demand at market value based on consideration of historical sales and product development plans. The Company recorded adjustments related to obsolete inventory in the amount of approximately $ 354,000 and $ 111,000 during the fiscal years ended June 30, 2023 and 2022, respectively. Property, Plant and Equipment Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided using the straight-line method over the estimated useful lives, of the related assets ranging from three to five years , or, in the case of leasehold improvements, over the lesser of the useful life of the related asset or the lease term. F- 7 Stock-based Compensation Pursuant to the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 718-10, Compensation-Stock Compensation , which establishes accounting for equity instruments exchanged for employee service, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances. Common stock or equity instruments such as warrants issued for services to non-employees are valued at their estimated fair value at the measurement date (the date when a firm commitment for performance of the services is reached, typically the date of issuance, or when performance is complete). If the total value exceeds the par value of the stock issued, the value in excess of the par value is added to the additional paid-in-capital. Revenue Recognition The Company recognizes revenue in accordance to the Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) for all contracts. The Company derives its revenue from the sale of products to customers. The Company sells its products primarily through a distribution network of equipment dealers, OEMs and battery distributors in primarily North America. The Company recognizes revenue for the products when all significant risks and rewards have been transferred to the customer, there is no continuing managerial involvement associated with ownership of the goods sold is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred with respect to the transaction can be measured reliably. Product revenue is recognized as a distinct single performance obligation which for the Company’s three major customers represents the point in time that they receive delivery of the products, and for all other customers represents the point in time that the Company ships the products. Our customers do have a right to return product but our returns have historically been minimal. Product Warranties The Company evaluates its exposure to product warranty obligations based on historical experience. Our products, primarily lift equipment packs, are warrantied for five years unless modified by a separate agreement. As of June 30, 2023 and 2022, the Company carried warranty liability of approximately $ 1,600,000 and $ 1,012,000 , respectively, which is included in accrued expenses on the Company’s consolidated balance sheets. Impairment of Long-lived Assets In accordance with authoritative guidance for the impairment or disposal of long-lived assets, if indicators of impairment exist, the Company assesses the recoverability of the affected long-lived assets by determining whether the carrying value of such assets can be recovered through the undiscounted future operating cash flows. If impairment is indicated, the Company measures the amount of such impairment by comparing the carrying value of the asset to the present value of the expected future cash flows associated with the use of the asset. The Company believes that no impairment indicators were present, and accordingly no impairment losses were recognized during the fiscal years ended June 30, 2023 and 2022. F- 8 Research and Development The Company is actively engaged in new product development efforts. Research and development cost relating to possible future products are expensed as incurred. Income Taxes Pursuant to FASB ASC Topic No. 740, Income Taxes, deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted, as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse. The Company has analyzed filing positions in all of the federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions. As a result, no unrecognized tax benefits have been identified as of June 30, 2023 or June 30, 2022, and accordingly, no additional tax liabilities have been recorded. The Company records deferred tax assets and liabilities based on the differences between the financial statement and tax bases of assets and liabilities and on operating loss carry forwards using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Net Loss Per Common Share The Company calculates basic loss per common share by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted loss per common share includes the impact from all dilutive potential common shares relating to outstanding convertible securities. For the fiscal years ended June 30, 2023 and 2022, basic and diluted weighted-average common shares outstanding were 16,055,256 and 15,439,530 , respectively. The Company incurred a net loss for the fiscal years ended June 30, 2023 and 2022, and therefore, basic and diluted loss per share for each fiscal year were the same because potential common share equivalents would have been anti-dilutive. The total potentially dilutive common shares outstanding at June 30, 2023 and 2022 that were excluded from diluted weighted-average common shares outstanding represent shares underlying outstanding stock options, RSUs, and warrants, and totaled 2,622,268 and 2,262,773 , respectively. At June 30, 2023 and 2022 potentially dilutive common shares outstanding that were excluded from diluted weighted-average common shares outstanding were as follows: SCHEDULE OF DILUTIVE COMMON SHARES OUTSTANDING EXCLUDED FROM DILUTIVE WEIGHTED AVERAGE COMMON SHARES OUTSTANDING June 30, 2023 June 30, 2022 Stock options 973,400 503,433 RSUs 193,749 304,221 Warrants 1,455,119 1,455,119 Total 2,622,268 2,262,773 Antidilutive securities 2,622,268 2,262,773 New Accounting Standards Recently Adopted Accounting Pronouncements The Company did not adopt any new accounting pronouncements for the year ended June 30, 2023 and 2022. Management has considered all recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements. F- 9 NOTE 3 - INVENTORIES Inventories consist of the following: SCHEDULE OF INVENTORIES June 30, 2023 June 30, 2022 Raw materials $ 13,047,000 $ 12,989,000 Work in process 1,277,000 927,000 Finished goods 4,672,000 2,346,000 Total Inventories $ 18,996,000 $ 16,262,000 Inventories consist primarily of our energy storage systems and the related subcomponents, and are stated at the lower of cost or net realizable value. NOTE 4 – OTHER CURRENT ASSETS Other current assets consist of the following: SCHEDULE OF OTHER CURRENT ASSETS June 30, 2023 June 30, 2022 Prepaid insurance $ 573,000 $ 478,000 Prepaid expenses 202,000 343,000 Other 143,000 440,000 Total other current assets $ 918,000 $ 1,261,000 NOTE 5 – ACCRUED EXPENSES Accrued expenses consist of the following: SCHEDULE OF ACCRUED EXPENSES June 30, 2023 June 30, 2022 Payroll and bonus accrual $ 1,157,000 $ 767,000 PTO accrual 412,000 430,000 Warranty liability 1,600,000 1,012,000 Other 12,000 - Total accrued expenses $ 3,181,000 $ 2,209,000 NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consist of the following: SCHEDULE OF PROPERTY PLANT AND EQUIPMENT NET June 30, 2023 June 30, 2022 Vehicles $ - $ 20,000 Machinery and equipment 1,169,000 808,000 Office equipment 2,153,000 1,574,000 Furniture and Equipment 273,000 256,000 Leasehold improvements 81,000 56,000 CIP 43,000 - Property, plant and equipment, gross 3,719,000 2,714,000 Less: Accumulated depreciation ( 1,930,000 ) ( 1,136,000 ) Total property, plant and equipment, net $ 1,789,000 $ 1,578,000 F- 10 Depreciation expense was approximately $ 899,000 and $ 575,000 , for the fiscal years ended June 30, 2023 and 2022, respectively, and is included in selling and administrative expenses in the accompanying consolidated statements of operations. NOTE 7 – Notes Payable Revolving Line of Credit On November 9, 2020, the Company entered into a Loan and Security Agreement (“Agreement”) with Silicon Valley Bank (“SVB”). On October 29, 2021, the Company entered into a First Amendment to Loan and Security Agreement (“First Amendment” and together with the Agreement, the “Loan Agreement”) with SVB which amended certain terms of the Agreement including, but not limited to, increasing the amount of the revolving line of credit from $ 4.0 million to $ 6.0 million, and extending the maturity date to November 7, 2022 . The First Amendment provided the Company with a senior secured credit facility for up to $ 6.0 million available on a revolving basis (“Revolving LOC”). Outstanding principal under the Revolving LOC accrued interest at a floating rate per annum equal to the greater of (i) Prime Rate plus two and a half percent (2.50%), or (ii) five and three-quarters percent (5.75%). The Company paid a non-refundable commitment fee of $ 15,000 upon execution of the Agreement and an additional non-refundable commitment fee of $22,500 in connection with the First Amendment. On June 23, 2022, the Company entered into a Second Amendment to Loan and Security Agreement (“Second Amendment” and together with the Loan Agreement, the “Second Amended Loan Agreement”) with SVB, which amended certain terms of the Loan Agreement, including but not limited to, (i) increasing the amount of the revolving line of credit to $8.0 million, (ii) changing the financial covenants of the Company from one based on tangible net worth to another based on adjusted EBITDA (as defined in the Second Amendment) on a trailing six (6) month basis and liquidity ratio certified as of the end of each month pursuant to the calculations set forth therein, and (iii) allowing for the assignment and transfer by SVB of all of its obligations, rights and benefits under the Agreement and Loan Documents (as defined in the Agreement and except for the Warrants). In addition, under the Second Amendment, the interest rate terms for the outstanding principal under the Revolving LOC were amended to accrue interest at a floating per annum rate equal to the greater of either (A) Prime Rate plus three and one-half of one percent (3.50%) or (B) seven and one-half of one percent (7.50%). Interest payments are due monthly on the last day of the month. In addition, the Company is required to pay a quarterly unused facility fee equal to one-quarter of one percent (0.25%) per annum of the average daily unused portion of the $8.0 million commitment under the SVB Credit Facility, depending upon availability of borrowings under the Revolving LOC. Pursuant to the Second Amendment, the Company paid SVB a non-refundable amendment fee of $ 5,000 and SVB’s legal fees and expenses incurred in connection with the Second Amendment. In connection with the Second Amendment, the Company issued a twelve-year warrant to SVB and its designee, SVB Financial Group, to purchase up to 40,806 shares of common stock of the Company at an exercise price of $ 2.23 per share pursuant to the terms set forth therein. On November 7, 2022, we entered into a Third Amendment to Loan and Security Agreement (“Third Amendment”) with SVB, which amended certain terms of the Second Amended Loan Agreement (together with the Second Amended Loan Agreement, the “Third Amended Loan Agreement”), including but not limited to, (i) extending the maturity date from November 7, 2022 to May 7, 2023 (the “Extension Period”), (ii) amending the financial covenants of the Company to cover the Extension Period and to include a liquidity ratio financial covenant, and (iii) amending the definition of Permitted Liens (as defined in the Third Amendment). Pursuant to the Third Amendment, the Company paid SVB a non-refundable amendment fee of $ 12,500 and SVB’s legal fees and expenses incurred in connection with the Third Amendment. F- 11 On January 10, 2023, the Company entered into a Fourth Amendment to Loan and Security Agreement (the “Fourth Amendment”) with SVB, which amended certain terms of the Third Amended Loan Agreement including but not limited to, (i) increasing the amount of the SVB Credit Facility from $ 8.0 million to $ 14.0 million, (ii) removing the liquidity ratio financial covenant of the Company under Section 6.9 of the Third Amended Loan Agreement, (iii) amending the definition of Borrowing Base (as defined in the Fourth Amendment), which includes a new defined term for Net Orderly Liquidation Value (as defined in the Fourth Amendment), and (iv) removing certain defined liquidity terms under Section 13.1 of the Third Amended Loan Agreement. Pursuant to the Fourth Amendment, the Company paid SVB a non-refundable amendment fee of $ 10,000 and SVB’s legal fees and expenses incurred in connection with the Fourth Amendment. On April 27, 2023, the Company entered into a Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) with SVB which further amended certain terms of the credit facility (together with the Fourth Amended Loan Agreement, the “Fifth Amended Loan Agreement Agreement”), including but not limited to, (i) extending the maturity date from May 7, 2023 to December 31, 2023 (the “2023 Extension Period”), (ii) amending the EBITDA financial covenant of the Company to cover the 2023 Extension Period, and (iii) amending the definition of EBITDA (as defined in the Fifth Amendment). Pursuant to the Fifth Amendment, the Company agreed to pay SVB a non-refundable amendment fee of $ 30,000 and SVB’s legal fees and expenses incurred in connection with the Fifth Amendment. In addition, SVB also agreed to waive compliance by the Company of the former EBIDTA financial covenant as of the month ended March 31, 2023. The Company has used the SVB Credit Facility to fund its operations and working capital requirements. Amounts outstanding under the Revolving LOC are secured by substantially all tangible and intangible assets of the Company (including, without limitation, intellectual property) pursuant to the terms of the Fifth Amended Loan Agreement, and the Intellectual Property Security Agreement dated as of October 29, 2021. During the year ended June 30, 2023, the Company had multiple Revolving LOC drawdowns totaling $ 63.4 million and multiple Revolving LOC payments totaling $ 58.4 million. As of June 30, 2023, the outstanding balance under the Revolving LOC was approximately $ 9.9 million. On July 28, 2023, the Company terminated the Loan and Security Agreement, dated as of November 9, 2020, as amended, by and among SVB and the Company, and concurrent with the entry into the Loan and Security Agreement, by and among Gibraltar Business Capital and the Company. The Company repaid the entire outstanding principal balance of the SVB Credit Facility plus all accrued and unpaid interest and related fees through the date of termination with a portion of the funds from the GBC Credit Facility on July 28, 2023. (See Note 13 – Subsequent Events) NOTE 8 - RELATED PARTY DEBT AGREEMENTS As of June 30, 2023 and June 30, 2022, the Company had no related party debt balance outstanding. Below are the activities for the Company’s related party debt agreements that existed during the periods ended June 30, 2023 and 2022. Subordinated Line of Credit Facility On May 11, 2022, the Company entered into a Credit Facility Agreement (the “Subordinated LOC”) with Cleveland Capital, L.P., a Delaware limited partnership (“Cleveland”), Herndon Plant Oakley, Ltd., (“HPO”), and other lenders (together with Cleveland and HPO, the “Lenders”). The Subordinated LOC provides the Company with a short-term line of credit not less than $ 3,000,000 and not more than $ 5,000,000 , the proceeds of which shall be used by the Company for working capital purposes. In connection with the Subordinated LOC, the Company issued a separate subordinated unsecured promissory note in favor of each respective Lender (each promissory note, a “Note”) for each Lender’s commitment amount (each such commitment amount, a “Commitment Amount”). As of June 30, 2023, the Lenders committed to an aggregate commitment of $ 4,000,000 . Pursuant to the terms of the Subordinated LOC, each Lender severally agrees to make loans (each such loan, an “Advance”) up to such Lender’s Commitment Amount to the Company from time to time, until December 31, 2022 (the “Due Date”). On December 15, 2022, the Board of Directors of the Company elected to extend the Due Date to December 31, 2023. The Company may, from time to time, prior to the Due Date, draw down, repay, and re-borrow on the Note, by giving notice to the Lenders of the amount to be requested to be drawn down. F- 12 Each Note bears an interest rate of 15.0 % per annum on each Advance from and after the date of disbursement of such Advance and is payable on (i) the Due Date in cash or shares of common stock of the Company (the “Common Stock”) at the sole election of the Company, unless such Due Date is extended pursuant to the Note, or (ii) on occurrence of an event of Default (as defined in the Note). The Due Date may be extended (i) at the sole election of the Company for one (1) additional year period from the Due Date upon the payment of a commitment fee equal to two percent ( 2 %) of the Commitment Amount to the Lender within thirty (30) days prior to the original Due Date, or (ii) by the Lender in writing. In addition, each Lender signed a Subordination Agreement by and between the Lenders and SVB dated as of May 11, 2022 (the “Subordination Agreement”) for the purposes of subordinating the right to payment under the Note to SVB’s indebtedness by the Company now outstanding or hereinafter incurred. On December 15, 2022, the Board of Directors of the Company elected to extend the Due Date to December 31, 2023 and the Company paid the Lenders an extension fee in the aggregate amount of $ 80,000 . On July 28, 2023, in conjunction with the concurrent termination of the SVB Revolving LOC and the entry into a new credit facility with Gibraltar Business Capital (“GBC”), each Lender signed a Subordination Agreement by and between the Lenders and GBC dated as of July 28, 2023 (the “GBC Subordination Agreement”) for the purposes of subordinating the right to payment under the Note to GBC’s indebtedness by the Company then incurred and outstanding or thereinafter incurred. (See Note 13 – Subsequent Events) The Subordinated LOC includes customary representations, warranties and covenants by the Company and the Lenders. The Company has also agreed to pay the legal fees of Cleveland’s counsel in an amount up to $ 10,000 . In addition, each Note also provides that, upon the occurrence of a Default, at the option of the Lender, the entire outstanding principal balance, all accrued but unpaid interest and/or Late Charges (as defined in the Note) at once will become due and payable upon written notice to the Company by the Lender. In connection with entry into the Subordinated LOC, the Company paid to each Lender a one-time commitment fee in cash equal to 3.5 % of such Lender’s Commitment Amount. In addition, in consideration of the Lenders’ commitment to provide the Advances to the Company, the Company issued the Lenders five-year warrants to purchase an aggregate of 128,000 shares of common stock at an exercise price of $ 2.53 per share that are, subject to certain ownership limitations, exercisable immediately (the “Warrants”) (the number of warrants issued to each Lender is equal to the product of (i) 160,000 shares of common stock multiplied by (ii) the ratio represented by each Lender’s Commitment Amount divided by the $5,000,000). Pursuant to a selling agreement, dated as of May 11, 2022, the Company retained HPO as its placement agent in connection with the Subordinated LOC. As compensation for services rendered in conjunction with the Subordinated LOC, the Company paid HPO a finder fee equal to 3 % of the Commitment Amount from each such Lender placed by HPO in cash. NOTE 9 - STOCKHOLDERS’ EQUITY At-The-Market (“ATM”) Offering On December 21, 2020 the Company entered into a Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”) to sell shares of its common stock, par value $ 0.001 (the “Common Stock”) from time to time, through an “at-the-market offering” program (the “ATM Offering”). The Company agreed to pay HCW a commission in an amount equal to 3.0 % of the gross sales proceeds of the shares sold under the Sales Agreement. In addition, the Company agreed to reimburse HCW for certain legal and other expenses incurred up to a maximum of $50,000 to establish the ATM Offering, and $2,500 per quarter thereafter to maintain such program under the Sales Agreement. The Company has also agreed pursuant to the Sales Agreement to indemnify and provide contribution to HCW against certain liabilities, including liabilities under the Securities Act. On May 27, 2021, the Company filed Amendment No. 1 (the “Amendment”) to the prospectus supplement dated December 21, 2020 (the “Prospectus Supplement”) to increase the size of the ATM Offering from an aggregate offering price of up to $ 10 million in the Prospectus Supplement to an amended maximum aggregate offering price of up to $ 20 million of shares of the Company’s common stock (the “Shares”) (which amount includes the value of shares the Company has already sold prior to the date of the Amendment) pursuant to the base prospectus dated October 26, 2020, the Prospectus Supplement, and the Amendment (collectively, the “Prospectus”). F- 13 From December 21, 2020 through June 30, 2023, the Company sold an aggregate of 1,524,873 shares of common stock at an average price of $ 10.45 per share for gross proceeds of approximately $ 15.9 million under the ATM Offering. The Company received net proceeds of approximately $ 15.3 million, net of commissions and other offering related expenses. The Shares were registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-249521), declared effective by the Securities and Exchange Commission (the “Commission”) on October 26, 2020, and the Prospectus. Sales of the Shares, if any, may be made by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the Securities Act. The Company or HCW may, upon written notice to the other party in accordance with the terms of the Sales Agreement, suspend offers and sales of the Shares. The Company and HCW each have the right, in its sole discretion, to terminate the Sales Agreement at any time upon prior written notice pursuant to the terms and subject to the conditions set forth in the Sales Agreement. Public Offering Registered Direct Offering On September 27, 2021, the Company closed a registered direct offering, priced at-the-market under Nasdaq rules (“RDO”) for the sale of 2,142,860 shares of common stock and warrants to purchase up to an aggregate of 1,071,430 shares of common stock, at an offering price of $ 7.00 per share and associated warrant for gross proceeds of approximately $ 15.0 million prior to deducting offering expenses totaling approximately $ 1.0 million. The associated warrants have an exercise price equal to $ 7.00 per share and are exercisable upon issuance and expire in five years. HCW acted as the exclusive placement agent for the registered direct offering. The securities sold in the RDO were sold pursuant to a “shelf” registration statement on Form S-3 (File No. 333-249521), including a base prospectus, previously filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2020 and declared effective by the SEC on October 26, 2020. The registered direct offering of the securities was made by means of a prospectus supplement dated September 22, 2021 and filed with the SEC, that forms a part of the effective registration statement. The “shelf” registration statement will expire on October 26, 2023. Warrants In connection with the Company’s RDO, in September 2021 the Company issued five-year warrants to the RDO investors to purchase up to 1,071,430 shares of the Company’s common stock at an exercise price of $ 7.00 per share and were estimated to have a fair value of approximately $ 3,874,000 . The warrants were exercisable immediately and are limited to beneficial ownership of 4.99 % at any point in time in accordance with the warrant agreement. In May 2022 and in conjunction with entry into a credit facility with Cleveland, HPO, and other lenders (together with Cleveland and HPO, the “Lenders”), the Company issued five-year warrants to the Lenders to purchase up to 128,000 shares of the Company’s common stock at an exercise price of $ 2.53 per share and had a fair value of approximately $ 173,000 . In June 2022 and in conjunction with the entry into the Second Amendment to Loan and Security Agreement with SVB, the Company issued twelve-year warrants to SVB and its designee, SVB Financial Group, to purchase up to 40,806 shares of the Company’s common stock at an exercise price of $ 2.23 per share and had a fair value of approximately $ 80,000 . Warrant detail for the year ended June 30, 2023 is reflected below: SCHEDULE OF STOCK WARRANT ACTIVITY Number of Warrants Weighted Average Exercise Price Per Warrant Remaining Contract Term (# years) Warrants outstanding and exercisable at June 30, 2022 1,455,119 $ 6.10 Warrants issued - $ - Warrants outstanding and exercisable at June 30, 2023 1,455,119 $ 6.10 3.17 F- 14 Warrant detail for the year ended June 30, 2022 is reflected below: Number of Warrants Weighted Average Exercise Price Per Warrant Remaining Contract Term (# years) Warrants outstanding and exercisable at June 30, 2021 214,883 $ 4.49 Warrants issued 1,240,236 $ 6.38 Warrants outstanding and exercisable at June 30, 2022 1,455,119 $ 6.10 4.17 Stock Options In connection with the reverse acquisition of Flux Power, Inc. in 2012, the Company assumed the 2010 Plan. As of June 30, 2023, there were 21,944 options to purchase common stock outstanding under the 2010 Plan. No additional options may be granted under the 2010 Plan. On February 17, 2015, the Company’s stockholders approved the 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan offers certain employees, directors, and consultants the opportunity to acquire the Company’s common stock subject to vesting requirements and serves to encourage such persons to remain employed by the Company and to attract new employees. The 2014 Plan allows for the award of the Company’s common stock and stock options, up to 1,000,000 shares of the Company’s common stock. As of June 30, 2023, 91,907 shares of the Company’s common stock were available for future grants under the 2014 Plan. On April 29, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan authorizes the issuance of awards for up to 2,000,000 shares of common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units, restricted stock awards and unrestricted stock awards to officers, directors and employees of, and consultants and advisors to, the Company or its affiliates. As of June 30, 2023, 1,587,147 shares of the Company’s common stock were available for future grants under the 2021 Plan. On October 31, 2022, the Board of Directors authorized a total of 624,441 stock options to be granted under the Company’s 2014 Plan and 2021 Plan. Activity in stock options during the year ended June 30, 2023 and related balances outstanding as of that date are reflected below: SCHEDULE OF STOCK OPTIONS ACTIVITY Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (# years) Outstanding at June 30, 2022 503,433 $ 11.03 Granted 624,441 $ 3.43 Exercised ( 22,500 ) $ 4.60 Forfeited and cancelled ( 131,974 ) $ 10.03 Outstanding at June 30, 2023 973,400 $ 6.44 7.40 Exercisable at June 30, 2023 398,922 $ 10.77 4.61 F- 15 Activity in stock options during the year ended June 30, 2022 and related balances outstanding as of that date are reflected below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term (# years) Outstanding at June 30, 2021 531,205 $ 11.02 Exercised ( 3,400 ) $ 4.65 Forfeited and cancelled ( 24,372 ) $ 11.65 Outstanding and exercisable at June 30, 2022 503,433 $ 11.03 5.66 Restricted Stock Units On November 5, 2020, the Company’s Board of Directors approved an amendment to the 2014 Plan, to allow for grants of Restricted Stock Units (“RSUs”). Subject to vesting requirements set forth in the RSU Award Agreement, one share of common stock is issuable for one vested RSU. On April 29, 2021, a total of 18,312 time-based RSUs were authorized by the Company’s Board of Directors to be granted under the amended 2014 Option Plan. On October 29, 2021, the Board of Directors authorized the following RSUs to be granted under the amended 2014 Option Plan: (i) a total of 97,828 RSUs to certain executive officers of which 48,914 were performance-based RSUs and 48,914 were time-based RSUs, and (ii) a total of 81,786 time-based RSUs to certain other key employees. The RSUs are subject to the terms and conditions provided in (i) the Restricted Stock Unit Award Agreement for time-based awards (“Time-based Award Agreement”), and (ii) the Performance Restricted Stock Unit Award Agreement for performance-based awards (“Performance-based Award Agreement”). On April 20, 2023, a total of 67,532 time-based RSUs were authorized by the Company’s Board of Directors to be granted to the Company’s four non-executive directors under the amended 2014 Option Plan. Activity in RSUs during the year ended June 30, 2023 and related balances outstanding as of that date are reflected below: SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY Number of Shares Weighted Average Grant date Fair Value Weighted Average Remaining Contract Term (# years) Outstanding at June 30, 2022 304,221 $ 6.06 Granted 72,566 $ 3.44 Vested and settled ( 109,676 ) $ 3.77 Forfeited and cancelled ( 73,362 ) $ 6.80 Outstanding at June 30, 2023 193,749 $ 6.09 0.98 Activity in RSUs during the year ended June 30, 2022 and related balances outstanding as of that date are reflected below: Number of Shares Weighted Average Grant date Fair Value Weighted Average Remaining Contract Term (# years) Outstanding at June 30, 2021 131,652 $ 9.25 Granted 250,786 $ 4.82 Vested/Settled ( 9,156 ) $ 11.56 Forfeited and cancelled ( 69,061 ) $ 6.93 Outstanding at June 30, 2022 304,221 $ 6.06 1.82 F- 16 Employee Stock Purchase Plan On March 6, 2023, the Company’s Board of Directors approved the 2023 Employee Stock Purchase Plan (the “2023 ESPP”).which subsequently was approved by the Company’s stockholders on April 20, 2023. The 2023 ESPP enables eligible employees of the Company and certain of its subsidiaries (a “Participating Subsidiary”) to use payroll deductions to purchase shares of the Company’s Common Stock and acquire an ownership interest in the Company. The maximum aggregate number of shares of the Company’s Common Stock that have been reserved as authorized for the grant of options under the 2023 ESPP is 350,000 shares, subject to adjustment as provided for in the 2023 ESPP. Participation in the 2023 ESPP is voluntary and is limited to eligible employees (as such term is defined in the 2023 ESPP) of the Company or a Participating Subsidiary who (i) has been employed by the Company or a Participating Subsidiary for at least 90 days and (ii) is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year. Each eligible employee may authorize payroll deductions of 1-15% of the eligible employee’s compensation on each pay day to be used to purchase up to 1,500 shares of Common Stock for the employee’s account occurring during an offering period. The 2023 ESPP has a term of ten (10) years commencing on April 20, 2023, the date of approval by the Company’s stockholders, unless otherwise earlier terminated. There was no stock purchased under the 2023 ESPP during Fiscal 2023. Stock-based Compensation Stock-based compensation expense for the fiscal years ended June 30, 2023 and 2022 represents the estimated fair value of stock options and RSUs at the time of grant amortized under the straight-line method over the expected vesting period and reduced for estimated forfeitures of options and RSUs. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from original estimates. At June 30, 2023, the aggregate intrinsic value of the outstanding options and the exercisable options were approximately $ 506,000 and $ 0 , respectively. The following table summarizes stock-based compensation expense for employee and non-employee option and RSU grants: SCHEDULE OF STOCK-BASED COMPENSATION EXPENSES Year Ended June 30, 2023 2022 Research and development $ 173,000 $ 144,000 Selling and administrative 625,000 567,000 Total stock-based compensation expense $ 798,000 $ 711,000 The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. The fair value of stock options was measured at the grant date using the assumptions (annualized percentages) in the table below: SCHEDULE OF FAIR VALUE ASSUMPTIONS OF STOCK OPTIONS Year Ended June 30, 2023 2022 (1) Expected volatility 90.12 % - Risk free interest rate 4.21 % - Forfeiture rate 20 % - Dividend yield 0 % - Expected term (years) 6.25 - (1) No stock options were granted during the year ended June 30, 2022. At June 30, 2023, the unamortized stock-based compensation expense relating to outstanding stock options and RSUs was approximately $ 876,000 and $ 474,000 , respectively, and these amounts are expected to be expensed over the weighted-average remaining recognition period of 3.34 years and 0.98 years, respectively. NOTE 10 - INCOME TAXES Pursuant to the provisions of FASB ASC Topic No. 740 Income Taxes (“ASC 740”), deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss and tax credit carryforwards. A valuation allowance of approximately $ 23,923,000 and $ 22,951,000 has been established to offset the net deferred tax assets as of June 30, 2023 and 2022, respectively, due to uncertainties surrounding the Company’s ability to generate future taxable income to realize these assets. The Company is subject to taxation in the United States, California and Georgia. The Company’s tax years for 2010 and forward are subject to examination by the United States and state taxing authorities due to the carry forward of unutilized net operating losses and research and development credits (if any). F- 17 The Company has incurred losses since inception. A current state income tax provision of $ 2,000 has been recorded for state minimum and net worth taxes. Significant components of the Company’s net deferred tax assets are shown in the table below. SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES Year Ended June 30, 2023 2022 Deferred Tax Assets: Net operating loss carryforwards $ 20,673,000 $ 20,654,000 Research & development credit carryforward 27,000 27,000 Capitalized research and development expenses 1,405,000 - Stock compensation 971,000 1,636,000 Lease liability 736,000 802,000 Other, net 776,000 559,000 Gross deferred tax assets 24,588,000 23,678,000 Less Valuation allowance ( 23,923,000 ) ( 22,951,000 ) Total deferred tax assets 665,000 727,000 Deferred Tax Liabilities: Right of use asset ( 665,000 ) ( 727,000 ) Total deferred tax liabilities ( 665,000 ) ( 727,000 ) Net deferred tax liabilities $ - $ - At June 30, 2023, the Company had unused net operating loss (“NOL”) carryovers of approximately $ 72,677,000 and $ 77,993,000 that are available to offset future federal and state taxable income, respectively. Federal NOL carryforwards arising after 2017 of approximately $ 50,269,000 do not expire. Federal NOL carryforwards arising before 2018 of approximately $ 22,408,000 and all of the state NOL carryforward begin to expire in 2030 . The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate at June 30, 2023 and 2022, due to the following: SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION Year Ended June 30, 2023 2022 Federal income taxes at 21 % $ ( 1,415,000 ) $ ( 3,278,000 ) State income taxes, net ( 422,000 ) ( 1,090,000 ) Permanent differences and other 152,000 102,000 Other true ups, if any 715,000 154,000 Change in valuation allowance 972,000 4,112,000 Provision for income taxes $ 2,000 $ - Internal Revenue Code Sections 382 limits the use of our net operating loss carryforwards if there has been a cumulative change in ownership of more than 50% within a three-year period. The Company has not yet completed a Section 382 net operating loss analysis. If such analysis determines there is a limitation on the use on net operating loss carryforwards to offset future taxable income, the recorded deferred tax asset relating to such net operating loss carryforwards will be reduced. However, as the Company has recorded a full valuation allowance against its net deferred tax assets, there is no impact on the Company’s consolidated financial statements as of June 30, 2023 and 2022. Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. F- 18 In accordance with ASC 740, there are no unrecognized tax benefits as of June 30, 2023 or June 30, 2022. The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research or experimental (“R&E”) expenditures under Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&E expenditures that are paid or incurred in connection with their trade or business which represent costs in the experimental or laboratory sense. Specifically, costs for U.S. based R&E activities must be amortized over five years and costs for foreign R&E activities must be amortized over 15 years; both using a half year convention. The Company has incorporated the impact of this new tax legislation into its financial statements as of June 30, 2023 and established a $ 1.4 million deferred tax asset for the remaining amortizable tax basis in its R&E costs in the table of net deferred tax assets above. The impact on the Company’s financial statements was immaterial given the full valuation allowance against the Company’s U.S. net deferred tax assets. NOTE 11 - CONCENTRATIONS Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and unsecured trade accounts receivable. The Company maintains cash balances in non-interest-bearing bank deposit accounts at a California commercial bank. The Company’s cash balance at this institution is secured by the Federal Deposit Insurance Corporation up to $ 250,000 . As of June 30, 2023 and 2022, cash was approximately $ 2.4 million and $ 485,000 , respectively. On March 10, 2023, the Federal Deposit Insurance Corporation (the “FDIC”) issued a press release stating that Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. In a joint statement issued by the Department of the Treasury, Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation on March 12, 2023, the Department of Treasury took actions to enable the FDIC to complete its resolution of SVB in a manner that fully protects all depositors. According to the joint statement (the “Statement”), depositors will have access to all of their money starting Monday, March 13, 2023. On March 13, 2023, Silicon Valley Bridge Bank, N.A., the new entity formed by the FDIC announced appointment of a new CEO, who provided assurance of immediate restoration of full banking services. On March 27, 2023, First Citizens BancShares, Inc. announced that it has entered into an agreement with the FDIC to purchase all of the assets and liabilities of Silicon Valley Bridge Bank, N.A. The Company has not experienced any losses in such accounts. Management believes that the Company is not exposed to any significant credit risk with respect to its cash. Customer Concentrations During the year ended June 30, 2023, the Company had two (2) major customers that each represented more than 10% of its revenues, on an individual basis, and together represented approximately $ 38,035,000 or 57 % of its total revenues. During the year ended June 30, 2022, the Company had four (4) major customers that each represented more than 10% of its revenues, on an individual basis, and together represented approximately $ 29,254,000 or 69 % of its total revenues. Suppliers/Vendor Concentrations The Company obtains a limited number of components and supplies included in its products from a small group of suppliers. During the year ended June 30, 2023 the Company had one (1) supplier who accounted for more than 10% of its total purchases which represented approximately $ 17,022,000 or 31 % of its total purchases. During the year ended June 30, 2022 the Company had one (1) supplier who accounted for more than 10% of its total purchases which represented approximately $ 13,884,000 or 28 % of its total purchases. F- 19 NOTE 12 - COMMITMENTS AND CONTINGENCIES From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in any legal proceedings that may arise from time to time may harm the Company’s business. The Company is not aware of any material legal proceedings currently pending or expected against the Company. Operating Leases On April 25, 2019 the Company signed a Standard Industrial/Commercial Multi-Tenant Lease (“Lease”) with Accutek to rent approximately 45,600 square feet of industrial space at 2685 S. Melrose Drive, Vista, California. The Lease has an initial term of seven years and four months and commenced on or about June 28, 2019 . The lease contains an option to extend the term for two periods of 24 months each, and the right of first refusal to lease an additional approximate 15,300 square feet. The monthly rental rate was $ 42,400 for the first 12 months, escalating at 3 % each year. On February 26, 2020, the Company entered into the First Amendment to Standard Industrial/Commercial Multi-Tenant Lease dated April 25, 2019 (the “Amendment”) with Accutek to rent an additional 16,309 rentable square feet of space plus a residential unit of approximately 1,230 rentable square feet (for a total of approximately 17,539 rentable square feet). The lease for the additional space commenced 30 days following the occupancy date of the additional space and will terminate concurrently with the term of the original lease, which expires on November 20, 2026 . The base rent for the additional space is the same rate as the space rented under the terms of the original lease, $ 0.93 per rentable square (subject to 3% annual increase). In connection with the Amendment, the Company purchased certain existing office furniture for a total purchase price of $ 8,300 . On December 16, 2022 the Company signed a Lease Agreement with MM Parker Court Associates, LLC to rent approximately 4,892 square feet of office space at Building 1959 Parker Court, Suite E, Atlanta, Georgia. The Lease has an initial term of five years and three months and commenced on or about February 1, 2023. The monthly rental rate was approximately $ 2,300 for the first 6 months, and $ 4,700 for months 7 to 12, escalating at 5 % each year. Total rent expense was approximately $ 899,000 and $ 867,000 for the fiscal years ended June 30, 2023 and 2022, respectively. Financed Leases SCHEDULE OF FINANCED LEASES The Company leased entered several financed leases during the year ended June 30, 2023 as follows: Lease Date Property Leased Lease Term (months) Commencement Date Monthly Lease Payment (1) 9/2/2022 Vehicle 60 9/10/2022 $ 1,100 10/17/2022 Manufacturing equipment 36 10/17/2022 $ 5,500 1/24/2023 Manufacturing equipment 36 1/24/2023 $ 6,700 3/2/2023 Manufacturing equipment 36 3/2/2023 $ 1,000 (1) Excludes sales tax and other fees. Lease costs are amortized on a straight-line basis over their respective lease terms. Depreciation expense related to leased assets was approximately $ 86,000 for the year ended June 30, 2023. Interest expense on leased liabilities was approximately $ 23,000 for the year ended June 30, 2023. The Company had no financed leases during the year ended June 30, 2022. The Future Minimum Lease Payments as of June 30, 2023 are as follows: SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS Operating Leases Finance Leases Year Ending June 30, 2024 $ 854,000 $ 173,000 2025 883,000 173,000 2026 910,000 85,000 2027 433,000 15,000 2028 64,000 21,000 Total Future Minimum Lease Payments 3,144,000 467,000 Less: discount ( 445,000 ) ( 51,000 ) Total lease liability $ 2,699,000 $ 416,000 F- 20 NOTE 13 - SUBSEQUENT EVENTS Gibraltar Credit Facility On July 28, 2023, we entered into a certain Loan and Security Agreement (the “Agreement”) with Gibraltar Business Capital, LLC, a Delaware limited liability company (“GBC”). The Agreement provides us with a senior secured revolving loan facility (the “GBC Credit Facility”) for up to $ 15 million (the “Revolving Loan Commitment”). The revolving amount available under the GBC Credit Facility is equal to the lesser of the Revolving Loan Commitment and the borrowing base amount (as defined in the Agreement). The GBC Credit Facility is evidenced by a revolving note, which matures on July 28, 2025 (the “Maturity Date”), unless extended, modified or renewed (the “Revolving Note”). Provided that there is no event of default, the Maturity Date can automatically be extended for one (1) year period upon payment of a renewal fee for each such extension in the amount of three-quarters of one percent ( 0.75 %) of the Revolving Loan Commitment, which fee will be due and payable on or before the applicable Maturity Date. In addition, subject to conditions and terms set forth in the Agreement, the we may request an increase in the Revolving Loan Commitment from time to time upon not less than 30 days’ notice to GBC which increase may be made at the sole discretion of GBC, as long as: (a) the requested increase is in a minimum amount of $ 1.0 million, and (b) the total increases do not exceed $ 5.0 million and no more than five (5) increases are made. Outstanding principal under the GBC Credit Facility accrues interest at Secured Overnight Financing Rate (“SOFR”, as defined in the Agreement) plus five and one half of one percent ( 5.50 %) per annum with such interest payment is due monthly on the last day of the month. In the event of default, the amounts due under the Agreement bears interest at a rate per annum equal to three percent ( 3.0 %) above the rate that is otherwise applicable to such amounts. We paid GBC a non-refundable closing fee for the GBC Credit Facility of $ 112,500 upon the execution of the Agreement. In addition, the Company is required to pay a monthly unused line fee equal to one-half of one percent ( 0.50 %) per annum on the difference between the Revolving Loan Commitment and the average outstanding principal balance of the revolving loan(s) for such month. The obligations under the GBC Credit Facility may be prepaid in whole or in part at any time upon an exit fee of (a) two percent ( 2.00 %) of the Revolving Loan Commitment if the obligations are paid in full during the first year after the closing date, or (b) one percent ( 1.00 %) of the Revolving Loan Commitment if the obligations are paid in full one year after the closing date, provided, that, the exit fee will be waived if such prepayment occurs in connection with the refinancing of the obligations with Bank of America, N.A., as lender. The Agreement contains customary representations and warranties, events of default, negative and affirmative covenants and financial covenants including maintaining minimum tangible net worth, and certain limitations on dispositions of assets. The Agreement also contains usual and customary events of default (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts payable under the GBC Credit Facility may be accelerated and/or GBC’s commitment may be terminated by GBC without any action by GBC. The loans and other obligations of the Company under the GBC Credit Facility are secured by substantially all of the tangible and intangible assets of the Company (including, without limitation, intellectual property) pursuant to the terms of the Agreement and the Intellectual Property Security Agreement entered into by and among the Company and GBC on July 28, 2023. Termination of Silicon Valley Bank LOC On July 28, 2023, the Company terminated the Loan and Security Agreement, by and among the Company and SVB, dated as of November 9, 2020, as amended, and concurrent with the entry into the Loan and Security Agreement, by and among Gibraltar Business Capital and the Company, as noted above. The Company repaid the entire outstanding principal balance of the SVB Credit Facility plus all accrued and unpaid interest and related fees through the date of termination with a portion of the funds from the GBC Credit Facility on July 28, 2023. F- 21